Financial services firms have a lot on their plate. They need to adjust to greater uncertainty, technology that changes faster than ever and customers who expect more and more flexibility. We believe sustainability is central to this new normal – pressure is coming in the form of consumer demand so firms and regulators must step up.
In our recent study of 3500 people, we learned consumers truly care about sustainability. An overwhelming majority expect sustainable financial services to become the norm (93%) – and almost half expect this to be the case by 2025.
There’s an immense gap in understanding of the impact of sustainable finance: just 12% of our respondents ranked sustainable finance products as the best way to positively affect sustainability. Meanwhile, studies show that changing where your pension is invested is one of the most effective ways to reduce your carbon footprint – more than 20 times more than stopping flying, becoming a vegetarian and moving to a renewable energy provider combined.
Consumers don’t think much of financial services’ record on sustainability – but suggest they could capitalise on efforts in this area. Only 17% of respondents think financial institutions do well at contributing positively to the environment, social causes and conducting themselves responsibly. Other results showed consumers care about authenticity, they want to understand and to embrace sustainable finance products and services.
Our survey suggests there’s a huge opportunity for the financial services sector, both in terms of growth and creating a more sustainable future. To succeed, firms need to be more convincing on sustainability, more helpful and provide more choice.
To build credibility, firms need to integrate sustainability throughout their organisations: from the energy that lights the office to equality in the workforce. Firms should get involved in the wider debate. They could make a real difference in moving people away from gas heating by devising imaginative financing options for renewable energy, for example. To help people feel confident and informed, providers need to invest in knowledge and prioritise customer experience. And there’s plenty of room for imaginative new products and services. Sustainability needs to be at the centre of customer propositions. Firms need to look beyond their four walls for ideas and opportunities for collaboration. They’re ideally placed to make sustainable living more affordable by supporting business customers with innovative and sustainable business models built on sustainable principles.
With the pent-up demand we’ve found, there’s a real need to protect against greenwashing, and for clear standards to prevent confusion. So, the UK government’s launch of the Green Taxonomy Advisory Group in June is a welcome development. Coming after the EU’s Sustainable Finance Disclosure Regulation (SFDR) was introduced in March, the UK can learn from any bumps experienced during implementation. But we can’t afford to let the timing slip and urge those involved to keep up the momentum.
We’d agree with those who’ve suggested UK firms look at the requirements of the EU SFDR now, as we know something similar is coming down the track. This will help those firms get ready and will help them build credibility. The FCA has made a positive and important step to support the private sector by offering a ‘sandbox’ for firms to test their products and services against potential sustainability regulations.
Similar efforts are being made internationally and, for consumers to have real confidence, greater global co-ordination and consistent standards are essential. While environmental standards have been developed piecemeal, regulators have the chance to take a more co-ordinated approach to developing international standards to avoid ‘social-washing’. As members of a working group within the International Regulatory Strategy Group, we support their recommended approach. Deciding on a lead principle like modern slavery should make it possible to find common ground across jurisdictions. The pandemic has brought wider awareness of inequality, coinciding with growing support for movements like Black Lives Matter and MeToo. Quite apart from being the right thing to do, for consumers to take up sustainable finance products, standards need to address the issues they really care about.
We see financial services as a huge catalyst for change. The sector can influence sustainability at a macro and a micro level and be central to the drive for a positive human future. There’s an urgency around this. We want to avoid the scenario which has evolved around plastics, for example. They’ve been a hot topic for about five years, but legislation is having to play catch-up as industry certifications have been developed and brands have done their own thing. These schemes may have their merits but lead to confusion for consumers. And our survey has shown people are ready for sustainable finance products and services. So, although there’s a crowded agenda for government, regulators and financial services firms alike, sustainability should be everyone’s priority.