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Why the ‘S’ in ESG deserves more attention
Global Banking & Finance Review®
Company
Gary Bond, CEO, TISAtech
ESG – or Environmental, Social and Governance – is having its moment in financial services. Broad agreement among nations, organisations and consumers of an urgency to step up efforts to address mounting environmental and societal concerns has put pressure on businesses to adapt to the new reality. According to PWC, the vast majority of consumers (83%) think companies should be actively shaping ESG business practices, with business leaders on the same page: 91% believe their company has a responsibility to act on ESG issues.
While ESG issues have increasingly come to dominate the executive agenda among fintechs and financial institutions, not all three elements receive equal attention. Internal policies and metrics have commonly been drawn up to tackle environmental and governance issues head-on, yet the ‘S’ has often been left out of the conversations – having even been branded by some as the ‘ugly duckling’ of ESG.
The scope of the social dimension has progressively widened over the past few decades. It now encompasses everything from how businesses treat and pay their staff; their approach to diversity and inclusion; their responsibilities to customers; how they engage with key communities; the human impact of the supply chain; and to what extent they generate value for society beyond simply making a profit.
As the cost of ignoring ESG grows higher, businesses operating within the financial space would do well to reflect on their social commitments and formulate long-term plans to rebalance the three pillars. To help them do so, TISAtech recently partnered with The Disruption House to gauge the sentiments of financial services leaders towards their organisation’s progress on the ESG front, and where they see room for improvement.
What do the stats say?
Earlier this year, we commissioned an independent survey of 200 senior decision-makers within UK financial services businesses. Having crunched the numbers, we found that, on the whole, the industry has made great progress towards achieving sustainability goals – a significant 72% of respondents said they are confident their business is prepared for future ESG regulation. That said, there is the appetite to do more: even greater numbers (80%) admitted their business should be going further to meet and exceed ESG obligations.
Wider sentiments chimed with existing research on the topic, offering evidence that the ‘S’ has slipped far behind ‘E’ and ‘G’ in the list of priorities among financial services firms and fintechs. Social was the lowest priority of the three, with just 24% of respondents citing it as the highest priority – contrasting with Environment (42%) and Governance (34%).
Why the ‘S’ has fallen by the wayside
One key reason why social has been overlooked in favour of ‘E’ and ‘G’ is the difficulty of tracking progress. A business’s carbon emissions, for instance, are much simpler to measure than its impact on local communities. A lack of standardised metrics for evaluating the management of social issues adds to the complexity, yet the industry must find ways to overcome these roadblocks.
Social performance is coming under the microscope, with businesses increasingly under pressure to engage meaningfully with the social aspects of ESG – particularly against the backdrop of the pandemic, which drew into sharp focus the need to serve those disproportionately affected by socioeconomic challenges. Stakeholders will be assessing companies on their ability to build inclusion, and meet the needs of employees, and anyone affected by everyday business operations, as well as improving lives in the local community more generally.
Looking to tech for guidance
As with most areas of business, technology can do much of the heavy lifting for businesses looking to improve and accelerate their progress. Without a regulatory framework in place to help them implement tried-and-tested methods, cloud-supported data management and reporting systems have come onto the scene to provide much-needed solutions.
The first step is to identify which social issues are most applicable to the business, and where they can make the most difference. Determining metrics to benchmark their performance is the second. In these initial stages, it can be helpful to enlist the help of a third party who can offer an external ESG audit as well as an indication of how the business measures up against competitors.
Once these two steps have been taken, businesses can use software to create quantifiable targets and feed in data continuously to track their progress towards these goals. Positively, there is an increasing availability of commercial products and services to help business play their part in tackling ESG concerns, including special analytic services and predictive technologies. In time, these solutions will become the mainstays of any progressive business model.
Having the data stored in a centralised repository, which can be accessed at any time by employees and other stakeholders, will also ensure transparency over the entire operation.
Moving forward
As ESG becomes a strategic imperative, fintechs and financial services must make clear and measurable commitments, and for which people are accountable. Positively, the swathe of accessible technology products available on the market today means that they no longer have to wait for regulation to catch up – as an industry, financial services and set and break new standards of their own accord.
Gary is the CEO of TISAtech. He has held numerous roles across fintech and financial services, including as CIO and head of European change for Fidelity International, as well as senior positions in venture capital firms. At TISAtech, Gary works to accelerate the adoption of fintech innovation in financial services by benchmarking, improving, and connecting fintechs with the financial institutions that most need their solutions.
ESG stands for Environmental, Social, and Governance. It refers to the three central factors used to measure the sustainability and societal impact of an investment in a company.
Corporate social responsibility (CSR) is a business model in which companies integrate social and environmental concerns in their operations and interactions with stakeholders.
Sustainability in finance refers to the practice of making investment decisions that consider environmental, social, and governance factors to promote long-term economic growth.
A survey in financial services is a research tool used to gather information from stakeholders, such as consumers or industry leaders, to understand trends, preferences, and attitudes.
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