How ESG Strategies Help Banks Protect Profits and the Planet

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).

Bank of America CEO Brian Moynihan, who chairs the IBC, said the goal was to create clear guidelines that will help companies approach their ESG goals in a straightforward and calculable way. “We built them off the architecture that we thought was comfortable for companies . . . which are real metrics that you can really calculate, that are material by definition, and then can be measured over time,” Moynihan said.

A Transparency Transformation

Transparency has never been a simple ask for financial institutions. A perfect storm of legacy IT systems, strict industry regulations, and siloed operations have slowed progress toward holistic digital transformation. But bank executives know they need greater speed, agility, and visibility—and they can see that the clock is ticking.

Last year, the U.S. Securities and Exchange Commission announced an enforcement task force intended to crack down on “greenwashing,” or corporate statements on environmental efforts that intentionally mislead consumers and investors. And more than 3 out of 4 consumers said they would discontinue their relationship with companies that treat the environment, employees, or the community in which they operate poorly.

To stay ahead of what’s coming down the pike, banks need to get their ESG metrics in order. But many may not have the systems and data in place.

According to a recent Workday study, “Closing the Acceleration Gap: Toward Sustainable Digital Transformation,” 47% of financial services leaders say there’s a growing gap between where their business is and where it needs to be to compete. And they say only 14% of their firm’s data is fully accessible—that’s stored, collected, processed, and managed effectively. 

Cloud-native systems that centralize financial, human resources, and operational data can give bank executives the ability to understand the wide-reaching impact of their organizations. Cloud solutions make it easy to see where investments align with ESG strategies and where big changes need to happen. They can help measure belonging and diversity outcomes across the employee life cycle. And they can even source, evaluate, and manage sustainable suppliers; deliver compliance training; and proactively plan and track ESG goals.

In such challenging times, business leaders must use all the tools at their disposal to build a brighter future. And as technology evolves, financial leaders have even greater opportunities to set themselves apart as sustainability leaders.

With the right reporting capabilities, banks can attract top talent looking to make a difference and empower investors to fund a sustainable society. They can react, in real time, to changes in the business landscape. They can reimagine how the world works—and use their influence to make that vision a reality. It all starts with clear, reliable data.

To learn more about how Workday helps financial services firms drive digital transformation, visit our website.