The Intergovernmental Panel on Climate Change recently released the first part of its Sixth Assessment Report. Additionally, this month the 26th UN Climate Change conference, COP26, will open its doors in Glasgow.
These two events – already highlights in the global climate crisis calendar – share the stark and unequivocal message: that climate change is widespread, rapid and intensifying, and that this time represents our last chance to get runaway climate change under control through collective action.
We can expect that the unique urgency facing world leaders at COP26 will manifest itself in an agreement that commits to ambitious targets aimed at reaching global net-zero emissions, and that governments, business and civil society will come under increased pressure to find and implement the practical solutions necessary to reduce emissions.
We know that business leaders want to make a positive contribution; the challenge is always converting these intentions into achievable actions. The primary drivers for action in business are either significant opportunity or existential threat – and it is often far easier to make the case for transformative business change in the face of existential threat.
The financial industry is at a confluence of opportunity and threat with regard to the climate crisis. Certainly, the UN and world leaders at COP26 have their sights trained on the role that financial institutions must play in unleashing the trillions of dollars in private and public sector finance required to secure global net zero.
Then there are the environmental, social and governance standards impacting on how we do business as well as how we invest – essentially a value proposition that assesses a company’s ability to safeguard and sustain long-term success.
Finally, there is the ongoing imperative of digital business transformation in the financial industry as well as in the industry sectors it touches.
Too often these aspects of business are considered and administered separately. Public policy and government affairs are the responsibility of one part of the business.
ESG is an important adjunct to investor relations, yet still too often regarded as the means to present an organisation’s credentials rather than an opportunity to adopt new ways of working. Digital business transformation is associated solely with technological change rather than, as it should be, a holistic approach to altering the way an organisation thinks, organises, operates and behaves.
The financial industry – encompassing retail financial services as well as the financial intermediary market – is exceptionally well-placed to bring these strands together.
By completing and sustaining the shift from physical products and services to digital, and by ensuring that it and the companies it works with adopt only those digital technologies that minimise the environmental footprint, the financial industry can implement practical solutions to redress the climate emergency while at the same time realising value for companies and investors.
Making changes
The Covid-19 pandemic showed how readily consumers can make the shift from physical to digital. The volume and value of cash withdrawn from Link ATMs fell by 60 per cent in March 2020 compared with the same period in 2019, while contactless payments increased by 44 per cent during lockdown and payments made by smartphones and digital devices also increased.
Against this backdrop of behavioural change, there is strong case for financial institutions to move customers away from dependency on physical cards and plastic, or paper banknotes.
The question of how people can access their money is also a preoccupation of regulators as they wrestle with the issue of how financial services companies use cloud services to improve business performance by reducing capital expenditure, while at the same time reducing their ESG footprint.
As the main US-based cloud service providers establish a greater international presence, regulatory concern about the national jurisdiction of customer data will be alleviated and financial companies can be more thoughtful about how they use cloud technologies compared with storing customer data onsite.
Blockchain has an undoubted role to play in validating companies’ ESG goals, where the complex supply chains involved require the distributed ledger technology of blockchain to track.
It is also the technology that sits behind bitcoin and other cryptocurrencies – in which investor interest has, no doubt temporarily, been dampened by environmental concerns about the energy-intensive crypto mining it requires. There is a need to optimise crypto, to use less energy-intensive security systems.
These examples demonstrate that new technologies and their adoption should be viewed in the context of the forces of connected change that are causing companies to rethink everything about how their businesses operate: shifting consumer behaviour, technological change, evolving business models and societal change.
By thinking about ESG in this way – as a framework to navigate the four forces of connected change, rather than simply as a cue to adopt incrementally greener technologies – the financial industry can accelerate ESG as a strategic priority.
Viewed as a part of the industry’s wider digital business transformation, ESG becomes a roadmap by which companies close the gap between what consumers and governments expect, and what their traditional business models can deliver.
Nigel Vaz is chief executive at Publicis Sapient
