Post-Pandemic Sustainability Opportunities for the Finance Industry

The planet was in a state of emergency even before COVID-19. So with the finance industry focusing on recovery and resilience as we come out of lockdown, should the environment and sustainability also be top of the agenda?

Luc Gueriane, Moorwand CCO

The Post-Pandemic Sustainability Opportunities for the Banking Industry

In partnership with Ecolytiq

Normalcy. A word that has eluded us this past year and has caused a sense of longing towards something familiar. With vaccine campaigns around the world ramping up, many discussions around reopening and returning to life as it was are taking place.

Therein lies a problem. We can’t go back to ‘normal’, we must move forward towards better.

The finance and banking industry, like many, was hit during the pandemic. Capital markets around the world tried to grapple with a global economy grinding to a halt. Now as these same markets begin to re-emerge into a post-pandemic world, financial companies will need to assess how they want to move forward.

Recovery, resilience, and longevity will be the main topics of concern, and many companies will try to plan for the next emergency. However, while pandemics may be difficult to predict, climate change is for certain.

For companies worried about the effects of a sluggish pandemic-laden economy, sustainability offers a two-birds-with-one-stone solution to climate change and underperformance.

A Catalyst for Change

Setting aside the rose coloured glasses, it is important to remember that even before the pandemic, which may feel like a lifetime ago, the planet was in a state of emergency. In fact, 2020 was tied with 2016 as the hottest year on record – the difference being that 2016 was warmer than average due to a natural El Nino climate event. Fires ravaged Australia in 2019-2020 burning hectares of land equivalent to the size of Syria. This cannot worsen.

The COVID-19 pandemic-induced lockdowns served as a reset for many people, whose former daily routines had disconnected them from their surroundings. Many found solace in rediscovering the natural world. According to a study, 70% of participants took more walks outside than had before. 59% of respondents said nature caused them to cherish a greater sense of mental health and well-being and as well as 29% of respondents saying that it had increased their appreciation for nature’s beauty.

This translates into new demand for sustainable banking and green investments. No longer is profit the sole consideration in portfolio curation. 2 of out 3 German and French retail investors are now looking to invest in environmentally conscious ways. They’re so committed to sustainable investing, they even accepted a hypothetical trade-off of up to -5% in performance in the pursuit of environmental impact.

The level of disruption brought about by the pandemic has presented the finance and banking industry with a rare opportunity to address the change it requires to meet the needs of today’s and tomorrow’s customers. Financial service providers need to re-emerge from the pandemic with a stronger, steadfaster concentration on sustainability. Progress isn’t achieved by going back – sustainability is the path forward.

In face of the challenges of last year, many banks have become more resolute in their pursuit of sustainability. According to a survey conducted by ING, although 53% of companies suffered budget cuts in the fallout from the pandemic, 57% are managing to accelerate their green transformation plans. That is because banks on the cutting-edge view sustainability not as a cumbersome hindrance but rather as the next driver of growth. Paired with continued innovations in the digital space, sustainability is posed to shape the future of payments and banking.

Banks Under Pressure

There’s a reason that 52% of investors ranked “carbon emissions/climate change” as their most important ESG priority. More than 200 of the world’s largest listed companies forecast that climate change could cost them a combined total of almost $1 trillion. The pandemic made clear that financial service providers must have sound strategies in place for the long-term health and resiliency of their companies.

Investors know that banks with strong ties to sustainability are also more likely to outperform their competitors. A joint paper published by the Harvard Business School and Oxford University said that sustainability-linked investments from 1996 to 2010 outperformed non-sustainable investments by over 600% on average. The power of a wholescale green finance transformation is not to be understated. The amount of potential revenue could open up an estimated 12$ trillion in market opportunities. Sustainability is good for business.

Along with the pressure from investors, banks and payments businesses will need to take into account that the pandemic has only accelerated consumer demand for sustainable products. The virus, just like climate change, respects no borders. The inherent globalised nature of our world was, therefore, contextualised for many. If anything, it demonstrated that if we are to tackle today’s most pressing issues, we must work together.

When presented with sustainable banking alternatives, 50% of customers said they would definitely consider changing to a more sustainable bank if the proposition were right. This means that financial firms could not only lose customers if they hesitate to embrace sustainability, but that they could win new ones if they choose to be ahead of the curve. Many customers are now looking for banking and payments products that align with their interests, providing more than just the generic financial services, to which they have become accustomed.

Employees, too, are looking for companies that share their ideals. As various sectors of the economy reopen, there will be a high demand for skilled workers. For Millennials and Gen-Zers looking to enter the job market, a company’s identity is a very important factor. 40% of Millennials, who will compose the overwhelming majority of the workforce in the coming years, said they would take a pay cut in order to work for a more sustainable company. It also has an impact on turnover with 70% of participants saying a strong engagement with sustainability would impact their choice to stay long term with an employer.

A persuasive combination of increased demand from investors, consumers and employees coupled with the business opportunities and the harsh realities of climate change have banks and financial businesses feeling the pressure to meaningfully engage with sustainability – and fast. But how?

The Evolving Role of Banks and Fintechs

As we look to move on from the pandemic, the emerging trends tell us that sustainable banking is the future of banking. Similarly to how a digital transformation characterised the growth of the 2010’s, sustainability will build off that for the 2020’s and beyond. Moorwand has projected that for banks and fintechs to stay relevant in 2021, they will need to offer a hyper-personalised banking experience with purpose.

This means that post-pandemic sustainability strategies will need to be vastly different from those before. For many financial companies, implementing sustainability strategies usually entails a narrow focus on in-house operations – Where can we save energy? Where can we reduce waste? While a good point of entry into the green arena, real sustainability in the banking and payment industry needs to be cascaded to all value propositions and offered as a service to customers, i.e. through ESG investing.

While good from a theoretical perspective, fintechs and banks nowadays have a lot to manage, especially with rising expectations to engage with sustainability. The space is shifting. The role as generic purveyors of financial information from yesteryear will become obsolete as soon as digital-first challenger banks carve out new niches that serve evolving customer needs better. Charting the best path forward can be confusing. Luckily, they don’t have to go at it alone. At the ready stand an innovative group of sustainable fintechs, who specialise in equipping financial service providers with the tools they need.

Embedded Solutions for Environmental Action

Banks do not have the capacity or bandwidth to be experts on everything. Considering the rate of innovation, the most effective solutions are often provided by fintechs. With the proliferation of open banking and the integration of APIs, banks are now able to more quickly and comprehensively incorporate state-of-the-art digital infrastructures into their existing banking experiences. This will only increase as we move on from the pandemic. Estimates from venture firm Andreessen Horwitz indicate that embedded fintech can increase a customer’s profitability by up to 5x from the original revenue stream.

Partnerships with the right stakeholders will be key in embracing this transformation. Sustainability is both an opportunity and a platform for new products and revenue streams. This new generation of fintech game changers is diverse.

From impact investing platforms to reforestation programs to carbon tracking technologies, there are ample solutions available. There are even solutions, like Sustainability-as-a-Service® provider ecolytiq, who offer a one-stop, end-2-end technology solution for banks and financial service providers looking to achieve real impact with banking.

The only question that remains is which is right for you? We, of course, suggest you connect with ecolytiq, but we also realise that any step towards sustainability is a win for us all. So do your research, involve the right partners, and most importantly, act. Climate change, just like the pandemic, can only be overcome when we work together. Because the best day for climate action was yesterday.

Discover more insights from Moorwand by reading our other articles.

To find out more about Moorwand’s Issuing (Bin Sponsorship)Digital Banking and Acquiring – head to our payment solutions page or get in touch.

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