Bank executives have a lot on their minds. Competition from tech-native startups. Navigating mergers and acquisitions. Enterprise-wide digital transformation.
But few topics are as urgent as environmental, social, and governance (ESG). As extreme weather events and resource shortages thrust environmental issues front and center, bank leaders are rethinking their business models. They’re innovating how they operate to meet shifting demands, while also reshaping their portfolios to focus on climate risk. It’s a lot to think about.
And there’s a lot to gain by getting it right. By investing in sustainable technologies, assets, and operations, banks can fund the solutions that will preserve the planet for future generations. They can kick-start a new generation of green business opportunities and play a key role in building a sustainable future.
Then there’s the financial appeal. In 2021, ESG investments reached an estimated $120 billion—both an all-time high and more than double the $51 billion that was invested in 2020. And green tech, in particular, is expected to skyrocket. In fact, Larry Fink, CEO of Blackrock, said he believes the next 1,000 unicorn companies will be involved in climate technology.
Looking to the future, banking executives believe that growth will be tied to the ability to anticipate and navigate the big-picture shift to a low-carbon economy. They can see that ESG funds are more resilient than traditional funds. And, across the board, global C-suite leaders say they expect ESG programs to contribute more shareholder value in five years than today.
In this environment, the question is not whether banks should increase their focus on ESG—it’s how they can get the information and insights they need to make the right ESG decisions in real time.
A High Level View of ESG
What do banks need to evolve their ESG tracking and reporting? ESG success starts with reliable, controlled data. By using data structures, such as worktags on human capital data, financial institutions can better understand how different teams and tasks tie to specific ESG goals. And with the right strategic planning and reporting capabilities, banks can develop and push toward targets that will deliver better ESG results, such as reducing carbon emissions.
While some banks may have the technology in place to enable this level of integration, many are still in the early stages of digital transformation, wondering which investments will deliver the biggest return.
To develop and implement a measurable ESG strategy, KPMG recommends that chief financial officers and chief accounting officers ask themselves, and their teams, a few key questions, including:
- What topics and concerns are your stakeholders most interested in understanding?
- In what part of the organization can you make the biggest ESG impacts?
- How can you integrate ESG into the value identification and measurement processes?
- Do you possess the required data capabilities to track and report ESG impacts, including measuring successes and identifying gaps?
With answers to these questions in mind, banking leaders can identify three to five areas to start capturing and analyzing ESG data. This will help highlight where they already have the information they need—and where legacy systems may be falling short.
Banks should also pay attention to ESG standard-setters, as the voluntary targets they define today will likely inform the regulations of tomorrow. For example, last year, more than 60 global business leaders committed to the Stakeholder Capitalism Metrics, a set of ESG metrics released by the World Economic Forum and its International Business Council (IBC).