Environmental, Social, and Governance (ESG) principles have become tenets to keep financial services in check for sustainable action, diversity, equity, and inclusion, and growth to ensure its future.
This is an excerpt from The Future of the Global Financial Ecosystem 2024: A Sibos special edition.
As global incumbents are working towards meeting ESG guidelines large corporates face the challenge of actively changing frameworks and maintaining transparency. Companies that appear to meet ESG standards by launching diversity initiatives without evidence
of success and participate in greenwashing will eventually be found out, as regulatory authorities, stakeholders, and especially consumers place greater value on businesses that uphold responsible and ethical principles.
Leading incumbents have been called out for promoting sustainability and net zero goals whilst financing fossil fuels. The Advertising Standards Authority banned HSBC from displaying misleading ads in the UK where they promoted green initiatives whilst they
supplied an estimated $8.7 billion into new oil and gas in 2021.
Other banking giants such as JP Morgan and Citi are huge contributors to the climate crisis, being the first and second in the world for fossil fuel financing respectively.
Citi has dealt $132.52 billion into fossil fuels from 2020-2022. Since the Paris Agreement, the world’s biggest banks such as Deutsche Bank, Wells Fargo, and Bank of America, poured over $5.5
trillion into coal, oil, and gas, according to
Banking on Chaos.
Monolithic corporate banks that dominate the industry have been offering empty promises when it comes to sustainable action. Despite funding climate initiatives and net zero pledges, these corporations are driving funds into fossil fuel industries and plunging
the world further into the climate crisis.
Speaking to a variety of financial institutions, this chapter explores how leading banks are building on ESG guidance, including the financially unbanked and underbanked, and ensuring that diversity and inclusion is prioritised in the future of financial
services.
Environmental sustainability initiatives are prioritised by financial organisations
Thanks to recent regulation being implemented by the International Sustainability Standards Board (ISSB), environmental reporting will be a requirement for financial institutions in the near future; transparency is no longer an option. Financial organisations
will be required to share their climate impact including scope 3 emissions along with scopes 1 and 2.
Adoption of the global sustainability standards that were posed by the ISSB at COP27 is being considered by numerous countries, including Canada, Japan, Singapore, Chile, Malaysia, Brazil, Egypt, South Africa, Nigeria, and Kenya. When developing ESG frameworks,
many banks are focusing heavily on the ‘environmental’ end, concentrating on sustainable projects and net zero goals.
Global head of sustainability of ING, Anne-Sophie Castelnau, states: “There is no denying that one of the biggest challenges for society is sustainability, in all its forms. Climate change threatens both the planet and its people. Ecosystems and habitats
are threatened by extreme weather events and biodiversity loss. People may struggle with inequality, poor financial health, and even a lack of basic human rights.
“We focus on climate action and lead by example by striving for net zero in our own operations. We play our full part in the social and low-carbon transformation that’s necessary to achieve a sustainable future, steering zero by 2050. We work with clients
to achieve their own sustainability goals, increasing our impact through partnerships and coalition-building. We manage the most relevant environmental and social risks while fostering the protection of biodiversity and human rights across all of our relationships.”
She furthers that ING is also working towards financial health and inclusion, but have made sustainability a central priority and placed it at the core of the company’s growth.
Diversity and including the financially excluded
Now that ESG guidelines are becoming more established to set values for financial institutions, diversity and inclusion is a greater priority. Even so, banks have only raised diversity targets for management bodies from 32% to 34% from 2020 to the end of
2022, according to
European Central Bank,
Banking Supervision.
It is also clear that banks are not only slowly working towards more diversity in the workplace, but there is systemic racism within the power structures in banks, which consistently exclude communities of colour and women in leadership roles and bank boards.
Devillers describes how BNP Paribas aims to make financial services more accessible to marginalised communities, and have several initiatives at work to promote economic empowerment and bridge the financial inclusion gap.
“Our frameworks emphasise the integration of impact investing, which directs capital towards ventures generating measurable social and environmental benefits. Through this approach, we are driving economic growth and social mobility for underserved populations,”
states Devillers. “To ensure diversity within BNP Paribas, we have implemented robust DEI frameworks. These frameworks incorporate inclusive hiring practices, diverse talent development, and equitable career advancement opportunities. By actively promoting
diversity, we aim to create an inclusive workplace culture that fosters innovation and empowers individuals from diverse backgrounds to contribute meaningfully to our organisation’s success.”
There is systemic and deliberate discrimination from financial institutions in disregarding the needs to underserved minorities for financial services, further rifting trust in banks from underbanked and unbanked communities, as shown by the Trident Mortgage
Company case. Adding to this, a study using data from US Federal Reserve-regulated banks found that a more diverse group of directors would be more likely to invest in underserves and minority communities.
Daniel Stephens, senior partner at McKinsey & Company, remarks on how the financial industry can reach out to the unbanked and underbanked: “Banking has a long history of empowering and enabling financial success in communities – and we see a huge opportunity
for banks to take this same approach to building viable businesses in underserved communities.”
Institutions will operate better and stronger when all employees feel like they are being heard and represented, and what banks must do to ensure that is embrace inclusivity, diversity, and equity initiatives and dismantle the hierarchal systems that consistently
place wealthy white men in positions of power.
Castelnau outlines that ING has implemented innovative digital tools to aid customers in their finances, specifically targeted at providing support to the unbanked and underbanked. She cites the Dutch tool Kijk Vooruit, which helps users manage their expenses,
Minna in Belgium, an app that manages subscriptions, and internationally used tool Everyday RoundUp, which rounds up users’ digital payments and moves the difference to savings accounts.
“To support financial health in our communities we partner with local organisations that provide financial planning, coaching and debt counselling. These include Schuldhulproute in the Netherlands; the Dutch Youth Perspective Fund for people aged 18 to 27;
Romania’s Banometru; and Nantik Lum in Spain, which helps women to gain financial independence.
“These tools are accessible via the ING app, such as shopping platform Dealwise that is available in Germany, Romania, and Belgium, which makes spending habits healthier by collecting deals and offering cashback.
“To have impact and make sustainable progress on diversity, inclusion and belonging, we need actions that are both data-driven and data-proven. This way we can keep track, measure progress and make sure the action plans will continue to help us take the
next steps forward,” she highlights.
“To drive that progress, the Management Board Banking (MBB) of ING has set two bank-wide gender diversity targets. We are committed to a mix of at least 35% women in senior leadership by 2028 and at least 30% female representation in the leadership pipeline
by 2025. These targets are not an end-goal in themselves but are simply milestones to achieving true gender equity at the top. And because targets are meaningless without action, a bank-wide action plan, based on reliable data and proven solutions, was launched
in 2022 to make sustainable improvements to how we hire, progress and retain
talented women.”
Castelnau states that ING also measures the gender pay gap across the board to tackle obstacles to gender equity, which will be required by the European Banking Authority from 2023.
While there is being progress made to dismantle the traditional infrastructures in place at large financial institutions, there is still a long road ahead for the banking sector to become greener and more diverse. Now, financial institutions need to prioritise
their funds and capabilities on strengthening operations by embracing diversity and working towards actionable sustainability.