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June 02, 2021
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Banks can build back better, be more sustainable and grow their bottom line

By Adrian Bishop | Time to Read: 00:06:00
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Banks can build back better, be more sustainable and grow their bottom line
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While customers report high levels of satisfaction and trust in UK banks during the pandemic, they believe there is still room for improvement.

One area that needs strengthening concerns ethical and sustainability issues, with around half (48.8%) of 500 UK customers surveyed by iResearch Services saying banks should increase their focus on the issues at hand in 2021 and another 38% stating that maybe they should.

While the view was most strongly held by those aged over 55s who lived in the South East of the UK, the opinion was broadly shared across the sexes, age groups and UK-wide locations surveyed.

Business benefits of sustainable practices

The good news for banks is that as well as improving customer satisfaction, those who adopt socially responsible and sustainable products could also boost their profits, according to an international study from iResearch Services.

But to do so, Chief Executives and C-Suite need to get behind ethical and sustainability projects, as they are critical for their success, according to around half of those taking part in the Sustainability and Climate Change study iResearch conducted for a global consulting firm in 2020.

As well as the personal, social and environmental advantages that such investment brings about, 58% of executives believe the bank’s bottom line can also benefit.

This has become even more apparent in 2021, as iResearch Services’ latest independent study, Sustainability in financial services: why the future is now, demonstrates. iResearch asked 550 senior executives across financial services in the UK, Germany, Australia, USA, China, Russia, Japan and India key questions to investigate the true state of sustainability in financial services, spanning retail and investment banking, asset management, insurance and life and protection sectors.

Gurpreet Purewal, Vice President, Business Development, iResearch Services, points out that financial services firms have plenty on their plate. “Companies will be looking at how they can balance the shorter-term necessities dictated by the Covid-19 pandemic with medium and longer-term ESG goals, all in tandem with strategies for business growth, now and in the future.”

Key sustainability commitments from global banks

As customers demand more ethical and sustainable products, banks around the world are increasingly responding to the issue. We’ve seen key commitments since the end of 2020 from retail and institutional banks alike; many in recent weeks as momentum builds to make sustainable finance pledges and beyond in the run-up to 2021’s COP26 focus.

HSBC announced in May 2021 their commitment to alignment of their financing activity with the Paris Agreement objectives and setting a 2030 net-zero target for their own business and supply chain operations. At the end of May, HSBC also launched a new climate technology (Climatech) team, bringing on board a new Climate Technology Investment Director and a new Head of Climate Technology Venture Investments. This follows the announcement from HSBC Global Asset Management of a new initiative in partnership with Pollination Group Holdings to create “the world’s largest natural capital manager”.

HSBC’s news comes hot on the heels of JP Morgan’s pledge towards carbon neutrality and alignment with the Paris Agreement goals earlier in the week and Bank of America’s announcement in April 2021 of the launch of a $1 trillion environmental business initiative to push for green finance by 2030, bringing its total sustainable finance commitment to $1.5 trillion.

Another current example of industry leaders moving forward on the issue of sustainability is that of Blackstone Group, the world's largest manager of alternative assets such as private equity and real estate. The firm is now asking its private equity arm to report on environmental, social and governance (ESG) matters to their boards, according to a Reuters report.

Blackstone's private equity business heads told the portfolio company CEOs, “Environmental, social and governance factors are attracting greater focus globally and demand careful attention on your part.”

The group has been seeking to bolster its sustainability credentials as investors increasingly question companies on their impact on the environment and workers.

Sustainability adds value to companies and investors

Funds that manage money using environmental, social and governance factors have risen in popularity in recent years, putting pressure on other investors to respond.

Sustainability can be turned into a commercial value-add by fund managers, says Yogesh Shah, CEO of iResearch Services, for example, the launch by Goldman Sachs of its first sustainability bond and other big names following suit. It’s a step in the right direction but must come as part of a suite of measures to improve overall sustainability and encourage more sustainable and ethical investments.

“Sustainability-linked loans and bonds are becoming increasingly common, and they provide the answer to a question that may be heard in many boardrooms. That question is, what value does being sustainable provide? There are several. As well as better meeting client demand, there are practical benefits: for example, your premiums may be lowered based on your business hitting KPIs such as limiting production waste for a product.”

Consistently keeping customers happy

Returning to the findings of iResearch Services’ UK retail banking survey and trust in banks during the pandemic, 59.5% of customers have been either satisfied or very satisfied with their bank’s customer service during COVID-19. There were 26.2% who were neither satisfied nor dissatisfied, 11.2% who were somewhat satisfied and just 3.2% not at all satisfied.

Even more, (62.2%) believe that their bank has acted in their best interests during the COVID crisis, with 19.6% saying it has not and the rest being undecided.

And satisfaction in bank communication received even higher approval ratings, with almost two-thirds (64.8%) saying banks had done a good job during the pandemic, 18.8% saying maybe and 16.4% disagreeing.

Any disappointment is not yet leading to significant numbers of customers seeking alternative banking options, according to the survey findings.

When asked if they would switch to banks with more personalised communication, around one in three customers (34.2%) agreed, 41.1% disagreed and 24.4% were undecided.

What about the competition?

There was even less inclination to swap to challenger banks – smaller, more flexible retail brands – with 28.2% saying they would consider the option if they had sufficient trust in the brand and its digital services, 45.6% against the option, 18% don’t-knows and 8.2% already with a challenger bank.

When asked how banks could improve customer communication, there were several ideas, led by ‘connecting on a personal level,’ followed by ‘more honest and open dialogue’ and a demonstration of how banks are helping customers.

Doing the right thing, for the right reasons?

When it comes to ethical and sustainability issues, it seems that banks are listening to the views of customers and are not only focusing more on playing a more sustainable role in society, but are taking practical steps and create ethical, environmentally and socially beneficial new products and initiatives.

Concerning, however, is the practice of “greenwashing”, which the financial services industry itself understands to be widespread across the financial sector. In the latest iResearch sustainability survey, over half of financial services professionals surveyed (52%) believe ‘greenwashing’ is rife within the industry, citing competitors deliberately misleading customers about their sustainability initiatives.

The survey results and the implications for the industry have been picked up and discussed by leading business publication City A.M.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, says companies face more pressure to take an active role in combatting climate change. ‘It is no longer acceptable to simply do no more harm, there is now an expectation for businesses to rapidly implement policies which will lead to a sharp reduction in carbon emissions, given the scale of the mountain to climb.”

It will be interesting to see how profits will be affected and whether more banks will follow, particularly now that corporate reporting regulation of ESG and sustainability factors is coming into play.

It’s imperative to make sustainable changes now for balancing people, profit and the planet.

To illustrate the importance of sustainability for clients worldwide, iResearch has launched a monthly Spotlight on Sustainability Summary, which highlights the latest news, views and trends in environmentally and socially sustainable finance.

Do any of these trends jump out?
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