27 July 2023

Let’s not forget the S in ESG

Surprisingly for me, I feel qualified to talk about this given my recent background which is:

  • 7 years as Chair Ecology Building Society – building a greener society.
  • 10 years as Chair The Big Issue Foundation – a hand up not a handout.
  • Founder of The Change Account – cloud based bank account for people in debt, homeless.
  • Co-Founder SaaScada – a cloud-native banking platform enabling banks to offer first class banking services to all.
  • Non-Executive Director at Centenary Bank Uganda.
  • Chair Governing Board Forum at The Global Alliance Banking on Values (75 banks worldwide all delivering ESG at their core).

There is quite rightly lots of talk and some action in the financial services industry on climate change –  or as most commentators in the sector call it – Climate Risk – in essence, the risk to the bank – and how they particularly as lenders can mitigate that risk but not fundamentally change the world of finance that both supports climate change but also the very real social pressures that are taking place worldwide with massive inflation, rising energy costs, commodity price increases and recession.

I see many banks with lovely CSR reports that tell how they are changing the world and addressing climate change – but not many of how we address the significant social issue currently facing us and how as an industry we address both of these.

The reality is that we are in danger of making climate change a concern for people who can afford to be concerned and leaving many just to survive the financial crisis – it is a complex argument – an example of which we can see below.

The fast fashion industry serves as a disturbing intersection where modern slavery and climate change meet, creating a complex web of exploitation and environmental devastation so it acts as a perfect example of how there cannot be environmental sustainability without addressing issues such as gender inequality and poverty.

At the heart of this connection is the relentless pursuit of low production costs, which often leads to labour exploitation and modern slavery. In pursuit of ever cheaper labour, fast fashion brands frequently outsource production to countries with insufficient labour regulations.

Simultaneously, the fast fashion industry contributes significantly to climate change through its environmentally damaging practices.

It is evident that urgent action is required and just how the causes are linked so are the solutions. We must advocate for increased knowledge, access to quality education, and voluntary family planning services. Empowering women, girls with the tools and resources they need to make informed choices critically reduces vulnerability to modern slavery and can help lift whole families out of poverty.

But what can we do in the financial services industry do both now and in the future – we need to change the way we operate addressing both the climate and the social concerns in a way that they become the way of doing business.

We need to change into an instinctive organisation which navigates the macrotrends of the future and will be prepared for unexpected sources of competition, extreme events, emerging risks, demands for greater transparency, new economic models, and evolving talent needs. Bringing together AI insights with the context and knowledge from its workers and partners.

The instinctive organisation will have broken down internal silos and embraced external partnerships, potentially even with their competitors. These organisations easily share data, intellectual property, skills, and more for a seamless user experience that benefits its customers.

Harnessing data and advanced technologies, instinctive organisations gain real‑time actionable insight and fast, accurate prediction capabilities so they can anticipate customer needs, business opportunities, and risks.

It will have an adaptive workforce consisting of man and machine, the workforce will embrace change, adopts new skills, collaborates, and is aligned around a common purpose: the customer.

It needs to be multi-local while also multinational and play an active role in funding the community it serves creating a halo effect within the community or ecosystem, as people are encouraged to become active patrons of their local community.

It needs be a financial knowledge hub to include education by using data to support their customers before they are in financial distress which means building a purpose-driven adaptive workforce to better meet customers’ needs both now and in the future. In reality we need to incentivise individuals and help them come forward with the problems they are facing and also incentivise products that can reduce carbon footprints etc – such as reduced loan rates etc for sustainable projects.

Monitoring customers’ spending and provide smart advice to avoid personal and business debt with an integrated, holistic view of the customer. It could act as its customers’ financial guardian. It could make decisions based on long-term sustainability.

All lending to have a social and environmental impact and be measured both initially and on a regular basis to see if it has achieved the stated aim – job creation? reduced environmental impact?

If bankers believe that the only relationship between its customers and itself is the transaction – then that bank is doomed to fail – it needs to create a community of interests and it needs to build at its core the desire to address both the E and S. This will require data and also cultural change at many levels but they will need to do this to survive!!

It is a challenge to the whole industry – can we adapt!!??

Steve Round

Steve Round

Founder and President

Steve has over 25 years of experience in disruptive financial services working internationally in Russia, South Africa and The Gulf.

Steve is the Chair of the Governing Board Forum of the Global Alliance for Banking on Values (GABV) and is also on the board of Centenary Bank, which is a member of GABV.

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