COP26 was not short on big announcements—and the Finance Day, Wednesday 3rd November, was one of the biggest. Holding aloft a green budget box, UK Chancellor Rishi Sunak stated that the 450 banks, insurers, pension funds, and assets managers that make up
the Glasgow Financial Alliance of Net Zero (GFANZ) have pledged to put the fight against climate change at the centre of their work. With these huge financial services players controlling around 40% of all global assets, this announcement unlocks $130 trillion
of private capital that will now be deployed to accelerate the transition to a net-zero economy.
Sunak said that the entire global financial system has to be rewired for net zero and that protecting the financial and environmental interests of private companies will hinge on better and more consistent climate data, mandatory sustainability disclosure,
rigorous climate risk surveillance, and more robust global reporting standards.
For big retail banks across Europe, this heralds an unprecedented opportunity to generate higher financial returns and to build their brand; but they also represent a key opportunity to keep increasingly ESG-focused customers happy—and to win new ones.
Our own research testifies to the benefits of a sharpened focus on ESG for retail banks. In May 2021, we conducted a survey of 6,500 retail banking customers across 13 European countries to understand their views on the ESG agenda and the implications for
retail banks. Across Europe, responsible investing took a clear lead as the most important ESG topic for customers. Forty-one percent of respondents wanted to be certain that the funds they invested in would not back companies that manufactured weapons or
polluted the environment, or factories that flouted safety standards and disregarded human rights.
Crucially, the survey also showed that in the UK, Germany, Austria, and the Netherlands, around one in five bank customers would likely switch to a bank that made ESG a higher priority. In Poland, Romania, Spain, and Italy, the proportion was much higher
at almost three in 10 consumers.
However, it’s not all about organisations’ own track records when it comes to measures such as meeting emissions targets, decarbonising, and reducing waste. They also need to make sure ESG concerns are embedded into their pricing structures, distribution
channels, and
product ranges. For example, mortgages and car loans represent good opportunities to help customers do the right thing, by offering preferential terms to house buyers who can show that the property they want to borrow for meets certain environmental standards,
or for electric vehicle loans.
Responsible investing is also going to assume more importance, and not just for investment banks or huge asset management outfits. Let’s not forget consumer-friendly bonds and individual savings accounts (ISAs). These can be notoriously difficult to navigate
if you’re looking for providers that reflect specific values, as the consumer rights organisation
Which? revealed in 2020. Thanks to impenetrable jargon and industry labels, many investors and non-investors struggled to pick out the correct definition of an ethical fund.
Which brings us onto another paramount issue: communication. While it’s become the norm for banks to publish ESG reports that highlight their various ambitions and achievements, they rarely talk about these actions elsewhere, and as a result only 30 to 50
percent of customers know what their bank is actually doing.
This means that banks’ stance on net zero and other ESG issues must come off the side-lines and take centre stage, not only to satisfy the governments, regulators and authorities demanding more action, but to forge the connections they need with their customers.
COP26 generated a raft of new regulations and high-profile financial commitments, marking a crystal-clear watershed moment for retail banks in Europe. As Mark Carney, former Governor of the Bank of England and now UN Special Envoy on Climate Action and Finance,
said at COP26: “Finance is no longer a mirror that reflects a world that’s not doing enough. It’s becoming a window through which ambitious climate action can deliver the sustainable future that people
all over the world are demanding.”
It's time to step up.