By Janine Chidlow, Sector Managing Director, Retail Banking & Insurance, AMS
Environmental, social and governance (ESG) considerations are rising in importance across the financial services sector as businesses increasingly realise the commercial benefits of pursuing ESG initiatives – and COP26 has only fuelled this interest. However, while a growing number of institutions are aligning operational and investment decisions with ESG frameworks, too few are harnessing the power of ESG to inform talent management strategies.
There is no doubt that banking and finance firms are, on the whole, now embracing ESG. In recent years, ethical banking and ESG investing have become hot topics across the sector globally. What’s more, the UN Principles for Responsible Banking have now been signed by over 170 banks worldwide which are committed to aligning business strategy with the Paris Agreement on climate change.
Financial services institutions are now largely tuned in to the fact that ESG activity has a knock-on effect on consumer and investor behaviour. As a set of standards investors use to assess a company’s operations, ESG can act as a trusted barometer for sustainability: when banks invest in these criteria, they can move one step closer to becoming the kind of socially and environmentally conscious institutions their stakeholders seek.
Specialist think tank New Financial has found that the value of ESG investment funds today is approaching $2 trillion, representing a four-fold increase since 2016. Nearly half (44%) of banking customers across Europe see ESG issues as an ‘especially important’ factor when choosing a bank or financial services provider, with younger individuals more likely to take this into consideration. According to EY, millennials are twice as likely to invest in a fund or stock if social responsibility is a component of the value creation narrative. Yet, just 25% of UK investors, and 37% in the US, are confident that their current portfolio is fully in line with their ESG values. Clearly, stakeholders are giving this issue some thought.
Behind the scenes, banks are utilising corporate governance intelligence tools to stay current with both evolving frameworks and public opinion on being a good corporate citizen and ensuring their company’s actions keep pace with both. In addition, many understand that choosing partners carefully is key to successfully integrating environmental goals across all business areas, and recruitment is no exception.
A growing number of firms are establishing or growing specialised ESG teams, and there have been reports that fund management companies are struggling to recruit senior ESG managers as demand for these specialists outstrips the supply of professionals with relevant experience.
However, beyond a focus on dedicated ESG talent, every business should be drawing on its ESG credentials to engage individuals across its workforce. At a time when acute skills shortages are impacting access to talent, both jobseekers and existing employees increasingly want to find a purpose in life and are seeking out employers that share their values. That might be a commitment to sustainability, philanthropy, or social impact. Against this backdrop, ESG frameworks unsurprisingly have an impact on talent attraction and retention within financial services firms – and companies must share and promote ESG messages to engage talent in the same way that they do other stakeholder groups.
As a report from the University of Cambridge, titled Bank 2030, points out, “Innovation and collaboration by empowered bank employees is essential if a bank is to accelerate the transition to a low carbon economy and secure the successful clients of the future”. As a variation on the adage goes, you can tell a company by the people they keep. Never has this been truer.
Environmental, Social, and Corporate Governance frameworks and standards are increasingly informing business agendas, strategies, and practices – and they must inform people management tactics too. At a time when four in 10 advisers believe that ESG investing is likely to lead to a better investment performance, according to research by the Association of Investment Companies, building teams of likeminded individuals who share a commitment to ESG best practice and sustainability is likely to pay dividends both commercially, and in terms of staff performance and retention.
In addition, rapidly evolving demands from talent pools mean that the best candidates are insisting on more from employers before they make a career move – and money won’t always motivate this change. As businesses endeavour to ‘build back better’ post-pandemic, we have an opportunity to drive progress through talent. In the trinity of people, planet, and profit, try putting people first in everything you do.