The financial services industry is rooted in risk management, trust and transparency, and experiencing rapid transformation in the digital age. Online banking, ‘robo-advice,’ and new pay technologies, like PayPal or Venmo, are leading to the closure of brick-and-mortar branches. Evolving investor preferences also demand sustainable investing options and increased transparency of sustainability issues. According to The Forum for Sustainable and Responsible Investment, assets under management using sustainable, responsible and impact (SRI) strategies grew from $8.7 trillion at the start of 2016 to $12.0 trillion at the start of 2018. Financial institutions can turn to resource management solutions and sustainability planning to increase transparency, satisfy investors and reduce risk.
What challenges are finance companies facing today?
The financial industry is rooted in understanding and accounting for risk to minimize liability in its policies, loans, or investments. It is also subject to heavy regulation. To protect consumer rights, extensive regulations exist with the intent to create market transparency between banking institutions and individuals, protect sensitive customer information, and minimize risk of major bank failures. Companies may also manage a complex portfolio of disparate sites but have little control or visibility into resource costs and consumption, which challenges their ability to gather and analyze data to inform sustainability strategies. In addition, returns on real estate investments are dependent on the proportion of net operating income relative to current market value. While significant efficiency improvements can reduce operating costs, driving increases to NOI and capitalization rates, there’s a disconnect with tenants of those properties on the commitment to sustainability goals, leading to unrealized opportunities.
What finance trends support the sustainability transformation?
- Banks and financial institutions are facing a trust crisis and there is movement toward smaller, community banks, over ‘big banks’. Furthermore, this impacts their ability to attract employees, evidenced in international banking institutions ranking ‘reputational issues of the banking industry’ as the greatest talent challenge they face. This has led to the introduction of additional regulation surrounding consumer protections and greater transparency.
- 62 percent of S&P 500 companies in the ‘financials’ sector reported having Board-level oversight on climate change, and 58 percent of companies responded to CDP alone. Facing growing investor pressure to publicly commit to sustainability goals, many companies in the financial sector have committed to RE100, a widely adopted goal to use 100 percent renewable energy.
- The rise in online banking, robo-advice, and “paytech” (e-wallet/contactless payments) is resulting in fewer visits to brick-and-mortar locations. As these physical locations evolve to adapt to different needs (loans, opening/closing of accounts), locations are closing, and the environmental footprint is getting smaller.
What should finance companies be thinking about?
Some of the following actions can help finance companies address current trends and external pressures while maximizing savings and resource efficiency.
- Understanding resource data is essential. As facility portfolios evolve, companies must have processes to gather and manage resource cost and consumption data across their property portfolios to serve as the foundation for future planning and disclosure.
- Connect sustainability trends with business risks & opportunities. Sustainability measures are not “one and done,” but rather an evolution in the finance company’s business model. Embed sustainability into decision-making and strategic planning and engage all levels of the company.
- Build and maintain stakeholder trust through transparency. Determine what stakeholders care about, prioritize goals related to those issues, and commit to a plan to address them.
- Prepare for climate change risks. As financial institutions assess risk related to climate change and build transparency in their portfolios, prepare to include Environmental, Social and Governance (ESG) metrics and scenario analysis into financial filings. Ignoring these issues can increase compliance and reputational risks.
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