Turning ESG ambitions into actions in Financial Services

From tackling inequality to transitioning to net zero, PwC’s latest CEO Survey shows the extent to which environmental, social and governance (ESG) is now central to the financial services (FS) industry’s strategic purpose. How can your business deliver?

“This is not a fad,” says Amanda Blanc, CEO of Aviva, discussing the growing momentum around business commitments on issues such as sustainability and diversity. “Top of our agenda is looking at how we are running the business, not just for today but for three years, five years, 10 years, 20 years’ time and beyond.”

Her sentiments are echoed by many other FS industry leaders, with nearly half those we surveyed confirming they have committed to net zero or are working towards it. Meanwhile, the most common climate change priority for FS organisations in Q2 2022 is planning practical steps towards achieving net zero goals, the CBI/PwC FS Survey shows.

More broadly, FS organisations are starting to make stronger connections between purpose and profitability, and recognising the value of building ESG into commercial strategy. In part, this stems from the growing threats posed by climate change and inequality. It also reflects the importance of ESG in attracting and retaining talent, customers and investors, at a time when people are looking for companies with values that align with their own.

The big question is: how to turn ESG commitments into actions. This was one of the key themes explored during a panel session I chaired at the CityUK 2021 National Conference in December. The opportunities for FS organisations to make a difference are clear. Infrastructure investment is a case in point. With government finances constrained in the wake of the COVID-19 pandemic, FS can step in to help channel the £40 billion of annual investment needed to fund low carbon and digital infrastructure over the next ten years. FS has an equally important role to play in helping to fund the training, infrastructure and business support needed to create jobs and boost opportunities within Britain’s deprived communities.

“As an FS organisation, ESG impinges on the fundamentals of your business, from where you invest to how you measure success. It can’t just be tacked on to existing strategy. ESG also affects how you manage performance, the make-up and diversity of your leadership and how you engage with governments, regulators and society as a whole.”

No easy answers

But as the CEO Survey findings further underline, there is work still to do. For FS organisations, ESG impinges on the fundamentals of business, from where to invest, to how to measure success. It can’t just be tacked on to existing strategy. ESG also affects how to manage performance, the make-up and diversity of leadership, and how to engage with governments, regulators and society as a whole. The challenges are heightened by an influx of new regulation and a lack of consistency in the criteria used by both regulators and rating agencies to judge ESG performance. Indeed, a standardised governance / reporting framework and the ability to set criteria was identified by FS organisations in the CBI/PwC Survey as the most common factor needed to deliver the social aspect of ESG agendas.

Building momentum

So how can you drive change within your organisation and live up to promises on ESG? For me, four priorities stand out:

1. Embrace radical change
The FS organisations out in front recognise ESG is a commercial imperative and growth opportunity, rather than just a compliance or reputational exercise. As a result, they’re putting ESG at the centre of their purpose, strategy and how the business is run. For example, rather than leaving the social and environmental impacts of investments to a specialist ESG team or compliance vetting process, they are integral part of the skills sets, performance incentives and decision making processes throughout the organisation.

2. Ensure products and services are socially inclusive
Rightly, FS organisations are looking at how to boost diversity and inclusion within recruitment, progression and ways of working. But inclusion is also an important commercial consideration and opportunity to reach out to new customers. For example, women benefit from only a fraction of venture capital investment in the UK. How can your business level up access to credit and investment? How can this support your social mobility objectives? Similarly, women face much lower income in retirement than men. How can your business develop the solutions needed to close the gender pension and protection gaps? It's perhaps not surprising that in the CBI/PwC Survey, more than half of respondents believe the biggest value to be gained from advances in artificial intelligence (AI) and analytics is in understanding customers and their behaviours / preferences.

3. Don’t just follow the herd
As in any time of transition and change, there will be difficult decisions. For example, you may come under pressure to withdraw support from businesses seen as environmentally damaging. But one of the clearest messages that came through from the CityUK panel session was that disinvestment should be the last resort. By planning for the long-term, you can help businesses to make the necessary changes. Even ‘dirty’ producers can be turned into clean and sustainable enterprises with the right investment and ingenuity. If you explain what you’re doing and why, you could make the difference and take stakeholders with you. With 92% of FS firms in the CBI/PwC Survey identifying 'achieving operational resilience' as their most common priority in future business strategy and transformation plans, tackling these difficult decisions in the right way will be crucial.

4. Transparency is key to driving trust
Trust will be hard-earned as you seek to overcome widespread public cynicism over so-called corporate greenwashing. That’s why it’s so important to go beyond narrow regulatory and financial reporting by clearly setting out your strategy, its rationale and progress against it.

Once in a generation opportunity

FS organisations can help to forge a fair, just and sustainable future. Delivering on this purpose demands fundamental transformation, rather than a tactical response. While such radical change is challenging, it offers a once in a generation opportunity to drive innovation, win new customers and be at the forefront of sustainable economic growth.