How are banks performing when it comes to sustainability?

Sustainability is something that is on the agenda of banks both big and small across the UK, US, and Australia. Indeed, across each of these regions, our Benchmark for Sustainable Banking research shows that approximately over 1 in 4 banking executives thought that sustainability was a pressing concern for their business. Awareness and appreciation for sustainable banking is often driven by the understanding that it improves customer loyalty, operational efficiencies, and profitability. In short, banks recognise that customers are demanding that they're more sustainable and will happily move their money elsewhere if those needs aren't met.

Common strategies employed to achieve sustainable goals include encouraging remote working, the reduction and/or elimination of paper, and the introduction of various digital solutions to create sustainable outcomes. Many banks also reported investing in carbon credits to achieve their sustainability goals.

Indeed, so pressing is the requirement that banks are increasingly pushing the ESG agenda down through their supply chain, ensuring that the whole ecosystem adopts sustainable practices. At least this is the intention, as there remains a gap between what banks want to do and what they manage to achieve.

What are the main barriers to banks becoming more sustainable?

Our research found that the greatest barrier to progress for UK banks is a lack of universally recognised regulation and enforcement, although in the Netherlands a lack of long-term commitment to execution was also found to be critical.

There were also concerns around the availability of talent and expertise to deliver on one's sustainability objectives. The skills needed to achieve sustainable outcomes are very broad, as it involves change management to help banks overcome cultural legacies and challenge their current thinking.

What is clear, however, is that no single barrier stands out as being universally agreed upon. Indeed, no single barrier received more than 34% agreement across our sample of banking executives, suggesting that there are a variety of challenges that need to be addressed by banks to enable them to become sustainable.

Despite the high level of representation at board level, why are banks still underperforming when it comes to implementing ESG initiatives?

There's a strong sense that the focus of banks is being misplaced, with short-term solutions, such as the aforementioned carbon credits, favoured over cultural changes that will drive more lasting change. If banks want to become truly sustainable, then it's pretty clear that they won't be able to buy their way there and must instead produce a root-and-branch analysis of how they do business to ensure every process has sustainability at its core.

A good starting point is to ensure that the talent mix within the business is right, combined with a robust measurement framework. If you're not monitoring sustainability

you can't possibly measure it. Banks need to ensure that they set ESG targets and review regularly, while laying down a foundation that allows them to track their progress.

Are there differences between Challenger and Traditional banks' sustainability strategies?

As we might expect, the fact that challenger banks can be sustainable from the very start means that they're better able to establish sustainability as a fundamental part of their business model, their talent management, and their processes and supply chains. Banks that have decided to make sustainability a key unique selling point are doing pretty well. This is by no means universal, however. Indeed, we found that just 52% of challenger banks in the UK were measuring governance.

As befitting much bigger entities, traditional banks are able to catch up with challenger banks once they gain that momentum and get all of their weight moving in the right direction. That said, for some traditional banks, driving change to adopt long term sustainability practices may take some time as the strategy, expertise, and budgets need to be aligned to implement on a large scale.

The challengers point the way, as those who have adopted a sustainable approach have seen impressive commercial results, such as improved efficiency and profitability, faster innovation, and better customer retention.

What is the impact of the Metaverse on sustainability and are banks responding to these challenges?

We remain at an early stage in the development of the metaverse as an interface by which banks are engaging with customers. To date it has been the larger institutions that have dipped their toes into the water, and these forays have been predominantly experimental in nature. To an extent, the trend around engaging with the metaverse follows the patterns forged by previous innovations, as bigger organisations have always had money to invest in such experimentation. Larger companies also play a crucial role in deploying their marketing and branding shift to emerging technologies. Challenger banks have adopted much more of a watching brief thus far, due in large part to the lack of the aforementioned resources that traditional banks have to play with.

Despite the nascent nature of the technology, most banking executives we spoke to were confident that it would play a positive role in tackling climate change. For instance, it might mean that customers no longer need to actually go to a branch, or indeed that employees no longer need to travel into an office.

There are risks involved too, of course, as the metaverse is highly likely to require a huge amount of energy to power. We already see that data centres are one of the largest emitters of carbon dioxide in the economy, and while the big tech companies are constantly working to lower this footprint, the metaverse promises to place an extra computational load on the cloud.

It's important, therefore, for banks both big and small to weigh up the pros and cons of the metaverse. It's increasingly clear that customers are demanding that they adopt sustainable strategies, so they will need to carefully consider whether the metaverse is sufficiently climate friendly to fit that mandate.