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July 18, 2022

ESG Top Trends: Banking ESG Impact

GlobalData Thematic Research has published a report entitled ESG Top Trends by Sector

The global pandemic arguably did more for environmental, social and governance (ESG)  awareness than it did for digital adoption. A dual health and economic crisis, in which the fate of individuals was dependent on how other people behaved, created a heightened sense of togetherness. This was visible as banks realised that only by helping customers survive the crisis could they help themselves repair balance sheets. Now, amid the Russia-Ukraine crisis, ESG has been brought into even sharper focus with banks under pressure to offer various types of support.

Listed below are the impact of ESG on banking and payments, as identified by GlobalData.

ESG remains highly problematic from a strategy and execution perspective

It is an initiative as complex and all-encompassing as the entire digital transformation project itself. In the context of bank financing, institutions can have very different starting points, with portfolios exposed to various risks, making it difficult to determine a baseline for success.

Within social and governance, there are a variety of political hot potatoes. Conflicts of interest around, for example, stakeholders versus shareholders, short-term versus long-term, or baby boomers versus millennials do not become any easier to solve just because banks suddenly decide they want to solve them.

In the Russia-Ukraine context, banks have to balance the moral and humanitarian imperative of helping against their primary duty of care to their customers, amid the very real risk of reprisals from highly effective state-sponsored cyber criminals.

Companies must conduct judicious risk assessment and place key technology bets to succeed

Having the experience, judgement, and expertise to navigate this new terrain, and decide where to act, where to wait, and where to compromise, will grant significant economic benefits over the next few years.

For example, banks have been highly ambitious with their pledges, with some assuming responsibility for the carbon emissions emitted by the housing stock of a bank’s mortgage book. We expect these big statements to be replaced with more achievable goals with greater accountability and oversight.

This is an edited extract from the ESG (Environmental, Social, and Governance) Top Trends by Sector – Thematic Research report produced by GlobalData Thematic Research.

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