Financial services industry has key role to play in ESG sustainability
If there was one thing the recent floods in KwaZulu-Natal and the Eastern Cape, as well as last year’s riots in KZN, made clear, it’s that the time for paying lip-service to sustainability, particularly when it comes to environmental, social and governance (ESG) issues, is over.
That’s the view of Mint Group Sales Account Manager Tristan Dennis, who maintains that financial services industry (FSI) organisations have a key role to play in this regard.
He points out that there is growing awareness of the link between sustainability and finance – usually referred to as “sustainable finance” – not only globally, but in South Africa as well. In fact, the National Treasury’s revised draft of its 2020 technical paper: “Financing a Sustainable Economy”, which was published in October 2021, recognises that sustainability goes way beyond the environmental focus of the earlier paper.
Aimed at all players in the local finance sector, including banking, retirement funds, insurance, asset management and capital markets, the National Treasury report acknowledges that long-term economic, environmental and social risks are linked. It is therefore aimed at encouraging more long-term sustainable economic assets, activities and projects that encompass both the concepts of green and socially focused finance.
For example, while climate change has traditionally been viewed as an environmental issue, the report points out that it is also a social and economic issue. This is because it can impact not only individuals, particularly vulnerable individuals, as the recent floods tragically demonstrated, but also critical infrastructure such as Durban harbour, major roads, factories and farmland. This widespread destruction will also negatively affect the country’s ability to grow the economy, create jobs and ensure food security.
According to the Treasury’s report, building a greater understanding of the environmental, social and governance risk exposure facing the financial sector is absolutely essential to attaining the financial stability needed to protect the South African economy and its citizens from major external shocks to the financial system. It is also key to building resilience through solvency and effective risk management, as well as balanced and inclusive growth.
Sustainable finance, the report continues, therefore requires the identification and mitigation of risks – including environmental and social risks – as well as the identification and implementation of economic opportunities that are socially, environmentally and economically beneficial.
For South Africa to transition successfully to what National Treasury terms a “climate resilient economy” and attain financial stability, the financial sector will have to “evaluate their portfolio and transaction-level environmental and social risk exposure and opportunities; disclose and mitigate these risks; and link them to products, activities and capital allocations.”
However, Dennis notes that much of the financial services industry’s sustainability focus has traditionally been directed inward, with organisations resorting to an almost tick-box PR exercise to demonstrate their ‘greenness’. These efforts have ranged from implementing energy saving protocols or going digital to save paper, to reducing the organisation’s footprint by enabling customers to interact with it remotely.
“The COVID-19 pandemic accelerated the glacial pace of workplace transformation as it became clear that the concept of a remote workplace was no longer a futuristic goal but a functional necessity. Smart utilisation of technology that, for example, enables employees to share knowledge and work more effectively regardless of their location, or enables virtual customer interactions, is no longer a nice-to-have, but a matter of corporate survival – in other words, corporate sustainability,” he says.
However, Dennis acknowledges that sustainability, as outlined in the National Treasury report, is a complex problem that many organisations battle to get to grips with, requiring as it does both an inward and outward focus.
“In Asia, many organisations have created a new position, that of chief sustainability officer (CSO), to help their organisations navigate the many and varied aspects of sustainability. Perhaps this is something that local organisations need to start considering too,” he adds.
He points out that there are any number of technologies that can assist FSI organisations in their sustainability efforts. This includes the use and integration of big data, artificial intelligence, machine learning, mobile platforms, blockchain and IOT. All or some of these can be woven into the products and services that FSIs can use when, for example, servicing their clients; ensuring they appoint product vendors and service providers who are themselves operating sustainably; or even conducting due diligence on long-term investment opportunities to ascertain their long-term ESG impact.
However, knowing which technologies to adopt – or even where to start – can be daunting. But there is no shortage of organisations ready and able to assist. Microsoft, for example, has developed a sector-specific “sustainable transformation landscape” to provide a broad framework – a “sustainable business model” that’s supported by three pillars – for businesses to follow on their ESG journey. It sets out what FSI businesses should consider now, next and thereafter across these pillars: sustainable platform; sustainable collaboration; and sustainable ecosystem.
“Much of the benefits of the investments made by FSIs today in driving the type of sustainability envisaged in National Treasury’s report will only be realised by future generations. And that’s what sustainability is all about. The point is that FSIs have the power – and the money – to make a real difference with the tools that are available to them right now. All they need is the commitment to do so,” Dennis concludes.