Sustainability refers to business practices in areas such as the environment, society, and governance (ESG) that are ‘sustainable.’ Environmental performance measures how corporate activity contributes to climate change, pollution, biodiversity, social performance assesses a company’s engagement with its workers, customers, suppliers, and the local community, and governance assesses how a company’s internal controls are used to inform business decisions, comply with the law, and meet moral obligations.
Listed below are the top sustainability predictions, as identified by GlobalData.
Many companies have responded to early-stage ESG with a change in PR rather than policy. In 2020, this approach will come unstuck. Citizens, governments, regulators, and the media are turning the spotlight on corporations and demanding action. Social inequality, corruption, tax avoidance, and a lack of action on climate change are all issues that companies must address.
CEOs that are too slow to improve their company’s approach to sustainability will see an exodus of customers and a drop in profits far sooner than they ever imagined. Customers, mainly Generation Hashtag, will vote with their wallets and accept higher fees, or less favourable interest rates, in order to align with ethical causes, but gradually other demographic groups will also demand accountability.
This groundswell of sentiment will usher in a new era of so-called purpose-driven banking. Rather than ‘green’ or corporate social responsibility being a discreet PR activity, ‘sustainability’ will be a core mission of banks, clearly defined and operationalised, to rival the longstanding focus only on shareholder value.
Existing co-operative business, like credit unions and building societies, may find that sustainability harms them, as they now occupy an ideological space from which it is harder to differentiate. This happened a little with money management fintech, which seemed to do credit unions’ work for them (and better), especially for younger customers.
The whole fintech segment is largely ‘sustainable,’ as it typically reduces paper and physical distribution and is about customer centricity. But new digital banks will go further in 2020, helping customers optimise ‘green’ spend by nudging them toward retailers with the better ESG scores or planet scores, as Aspiration does; even declining transactions if a given user’s pre-set carbon offset limit has been exceeded.
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In wealth, many robo-advisors offer social investing and Morgan Stanley offers clients an Impact Quotient tool that helps prioritise ESG considerations, such as climate change and gender equality, on a customised basis. ESG criteria for lending are well established, with new players like Triodos Bank offering full transparency around all lending. In 2020, increasingly these green portfolios will move from being kept separate from core offering to becoming the core offering.
A key battleground for incumbent banks, environment and social aside, will be fee models. Hidden charges, punitive fees, and misspelling are a big part of the longstanding ill will and low trust toward banks. Perhaps in 2020 a big bank will break ranks and cannibalise its own fee-income revenue by removing hidden, punitive, and unfair charges to build consumer trust and demonstrate transparency.
Another intervention could be limits on variable pay, supporting so-called balanced scorecards to guard against ‘product push,’ and force sales staff to engage more meaningfully with the specifics of each customers’ financial situation, while devising new performance metrics based on helping customers.
This is an edited extract from the Banking & Payments Predictions 2020 – Thematic Research report produced by GlobalData Thematic Research.