Purpose and profit - why ESG goals are fundamental to 21st century banking

In February 2021 BlackRock CEO Larry Fink called on the private sector to think hard not just about how it could deliver financial performance but also how it could serve a social purpose, saying: "Without a sense of purpose, no company, either public or private, can achieve its full potential.?

BlackRock isn't alone. Environmental, Social and Governance (ESG) is a top priority and a buzzword that everyone is talking about. Barclays has pledged a net zero target for 2050, and the Bank of England (BoE) has confirmed that it is working to "embed climate change into financial decisions." A host of other stalwarts, including Lloyds, HSBC and Deloitte have also made similar pledges - with some moving their net zero target ahead to 2030.

Institutions such as these have a significant role in the fight against climate change, particularly in their choice of investments. It's no hidden secret that ESG standards have crept higher on the agenda for investors in recent months. However, banks need to be highly cautious that they don't succumb to greenwashing.

They need to ensure that every trade finance product marked as 'sustainable finance' is worthy of that label, which requires a transparent methodology and the capacity to measure these results.

According to recent research from BlackRock, one in five investors are more interested in sustainable investing because of the pandemic and intend to double their allocation to sustainable and impact investing over the next five years.

ESG must be a genuine priority for senior leaders. It is all too easy for institutions to say the right things without delivering real action. It's essential that the C-suite lays out clear strategies for their banks and then provides the proper levels of resources (people and financial) to help those strategies come to life.

Banks have to work out how to measure and report their sustainability impact and progress towards improving it. As the old adage says: if you can't measure it, you can't manage it. Clear and transparent reporting will help ensure that goals and targets are met.

While ESG should be woven into the broader digital strategy, technology will play a different role in each of the E, the S and the G categories. For example, environmental goals could be helped by using technology to support more remote working and meetings as we have seen in the past year, therefore reducing the need to travel and subsequent carbon emissions.

While E, S and G are currently lumped together, each topic is important enough to stand alone and we  should look at each one independently. One way of doing this is to consider all stakeholders in decision-making - not just shareholders but also employees, customers, the supply chain, and the communities in which they operate. The goal should be for all of these people to benefit from any decision.

Finally it's important to note the vital role that banks have played in keeping economies moving through the Covid-19 recovery, supporting companies of all sizes throughout the crisis. I hope they continue to do so but with a greater focus on sustainability post the pandemic.