By Katy Jacob, Vice President of Research and Impact at SpringFour
In the wake of climate change disasters and social unrest in response to racial inequality, many companies are ramping up their environmental, social and governance (ESG) programs to become better corporate citizens with a positive impact on customers and community.
Banks in particular are reimagining their role as corporate stewards, and rethinking what ESG means for them as part of a broader emphasis on corporate social responsibility (CSR). In fact, in a report focused on banks in a post-COVID world, McKinsey states that in order to thrive, banks must increase their emphasis on ESG while also shaping their corporate purpose.
One area of inequality can have a domino effect on others. In the wake of COVID-19, political protests around racial inequality, natural disasters, and climate-related tragedies have devastated many communities. Financial institutions see these impacts every day: as renters are disproportionately impacted by job loss; as communities of color are disproportionately impacted by natural disasters; and as a worldwide pandemic disproportionately devastates neighborhoods that lack access to adequate healthcare.
Each one of these realities means that people struggle in a variety of ways every day – one job loss, one health care crisis, one prolonged utility outage can have a cascading impact on a family’s ability to pay for other basic necessities, like food and childcare.
So often, these families don’t know where to go for help. ESG and CSR have only recently become household acronyms. Banks have not always understood their impact on families and communities, nor have they given families in the midst of financial crisis the tools to find solid ground.
Today, however, financial institutions have not only the opportunity, but the responsibility, to be a positive force in people’s lives. Indeed, banks seem to be on the same page in the wake of the COVID crisis. Recently, more than 60 major companies, including large financial institutions such as Bank of America, announced that they will be adopting a new framework for reporting on ESG metrics in partnership with the World Economic Forum. This framework encompasses metrics from greenhouse gas emissions to board and staff diversity to programs to fight income inequality.
It is through these ethical changes that banks can become leaders in ESG, creating products and services that improve the long-term financial health of their customers. ESG programs at financial institutions include more than just retail products – they encompass community services, partnerships with nonprofits and fintechs, green investing strategies, and more.
Families want to engage in a variety of ways with the companies with whom they have a financial relationship. A survey conducted in the summer of 2020 revealed that 83% of respondents would like to get additional financial resources and assistance from their bank. Almost two-thirds would appreciate the same kind of assistance from their credit card company. People are looking for meaningful relationships with entities that they already have a financial relationship with – and they are expecting those companies to deliver.
A 2021 survey by MX Technologies found that 50% of bank customers don’t think their financial institution helps them become financially healthy. While this means that half of customers do think their banks are helping their financial health, there is obvious room for improvement.
This is where programs that focus on ESG come in. Compliance with regulations like CRA, which demonstrates a bank’s commitment to investing in all of the communities they serve, are a start – but they’re not enough. Financial institutions can show that they recognize the role they play in the larger community by dedicating resources to environmental and social programs – and by actively not harming the environmental and social infrastructure of their communities.
ESG puts a company’s larger values on the table, and customers are hungry to understand what those values are in light of the COVID-19 pandemic that has impacted almost every economic sector and reverberated across America.
Katy Jacob is the Vice President of Research and Impact at SpringFour, the only Certified B, social impact fintech company that helps financial services institutions limit risk by empowering improved payment performance and increased customer engagement.