The financial services industry has started to play its part in mitigating the climate crisis, but experts believe that it can go much further – and faster
In July, private bank Coutts & Co joined a very select band of financial institutions in the UK by becoming a B Corporation. This means that Coutts (often referred to as the Queen’s bank, having served the monarchy for three centuries) has committed to upholding the highest standards in its dealings with staff, customers, the wider community and the environment.
Some observers may see the bank’s attainment of B Corp status as a bid to restore its image after it was dragged into the recent corruption scandal concerning 1MDB, the now-insolvent Malaysian state fund. But it can be argued that becoming a B Corp is too stringent a process to be a mere PR stunt. What’s more, according to its CEO, Peter Flavel, certification is only the start of a concerted effort by the bank to help tackle the climate crisis.
“Having an answer to ‘what next?’ is what we feel matters the most,” he says. “While this certification is absolutely important to us, it’s what we do from here to improve ourselves, support others and ensure that more businesses are thinking sustainably and responsibly that will make the difference. We want to be an active part of the B Corp community, help to build it and drive positive change.”
After Charity Bank and Triodos, Coutts is the third bank operating in the UK to achieve B Corp certification, which requires a business to prove that it values profit and purpose equally. This is far easier said than done in an industry renowned for its focus on the bottom line.
Chris Turner is the UK executive director of B Lab, the body that awards the certification. He says that, for banks to obtain and maintain B Corp status (it must be reassessed every three years) they are “required to disclose their level of investment in potentially sensitive industries and the management practices in place to ensure the sustainability of their approach”.
This is likely to be significantly harder for a large multinational bank to achieve than it would be for a relatively small concern such as Coutts (which is part of the NatWest Group). Despite this, Turner believes that the financial services industry “is crucial in tackling the climate emergency. It is not only feasible that publicly traded banks and other large financial institutions can become B Corps; it is also looking increasingly likely, as the markets develop their understanding of the importance of sustainability and recognise the certification’s value.”
Barriers to sustainable banking
Jenny Davis-Peccoud is head of the global sustainability and responsibility practice at Bain & Company. She says that she has noticed “a big move across the financial services sector to embrace sustainability in a really meaningful way. That includes banks, asset managers, insurers and private equity firms.”
But she observes that many of these businesses are struggling to surmount obstacles to achieving their sustainability goals. “This is an emerging space, so it’s not at all clear how the regulation of various issues will play out across different regions, for instance. There is also a barrier regarding mindset: if you’ve had a lot of success making choices based on one set of parameters, it takes people a while to be convinced by an approach that looks to inject new parameters into the decision-making process.”
Davis-Peccoud adds that a lack of sustainability data and tools is also a limiting factor for many players at the moment. She believes that, while large banking groups will have more enabling resources at their disposal, such barriers to sustainability are more easily negotiated by smaller players.
“If you’re operating mostly in one market, it’s easier from a change-management perspective, because you have only one set of variables to wrap your head around,” Davis-Peccoud says. “By contrast, if you’re operating across continents, you have to deal with the fact that these markets are moving at very different paces. And, if you’re offering a whole host of services, ranging from commercial banking to investment management for high-net-worth individuals, then your sustainability strategy would need to play out differently in each of those cases.”
Paving the way to an ethical future
Financial institutions have more incentive than ever before to improve their sustainability practices, according to Davis-Peccoud, who adds that it’s no longer simply a case of doing what’s right for the environment.
“People are also seeing that there is value to be created in tapping into new segments and helping clients to achieve their sustainability goals through the right financing on the right terms,” she says. “They’re also starting to see that there are benefits to this that cut the cost of managing risk in the investment portfolio.”
There is arguably no greater long-term economic risk than the climate crisis. As much as it’s commendable that Coutts and its ilk are getting involved in initiatives such as the B Corp movement, the rate of change is unfortunately still dangerously slow, according to Davis-Peccoud.
“Nearly all of the money that’s at work in the market hasn’t yet been connected with the sustainability push,” she says. “Of course, among that total there’s a range of motion, some of which will be just fine and some of which will be damaging. Part of the problem is that it’s not clear. We’ve had some early steps in the right direction, but the bulk of the work is still to come.”
How far does the finance industry need to go?
Coutts has set itself a target of ensuring that at least half of the properties bought using its mortgages have an energy performance certificate rating of at least C by 2030. Any mortgage-holder who improves their home’s rating to C or above could be eligible for an interest-rate discount. The bank also supports the Green Finance Institute’s home retrofitting principles, which ensure that loans are given only to energy-efficiency work that meets industry standards.
Such initiatives represent “a positive start, but to have a real impact they need to go further and become more mainstream”. So says Sarah Gilby, technical director at sustainability consultancy Anthesis.
While she believes that financiers have a vital role to play in mitigating the climate crisis, she questions whether a “mortgage rate reduction is enough of an incentive for a consumer to invest in a more energy-efficient home or it’s merely a bonus for something they would be doing in any case”.
Gilby observes that financial institutions can “evolve to provide education and awareness of the climate change crisis and the impacts on businesses”.
She adds that the industry is “becoming far more aware of the financial implications of doing nothing, as well as the benefits of doing good business. This can be seen in the explosion in the number of times it has referred to ‘environmental, social and corporate governance’ over the past year or so.”
Gilby believes that the industry’s movement towards sustainable finance will “continue at pace, as more technologies are developed and seen as positive investments. Another connected way in which financial services can help is by avoiding investments in sectors that contribute to climate change. We’re seeing an incredible shift in divestment from assets that do harm in this way, which is amplifying the message.”