Finance firms have ‘no choice’ on ESG

The importance of ESG continues to grow. It now looks more like an absolute necessity than an optional extra.

A new report from global professional services firm KPMG has warned that ESG (environmental, social, and governance) projects are unavoidable for financial firms.

It also hinted that failing to recognise this new reality would cause friction between these firms at their most important stakeholders, effectively cementing ESG’s position in corporate strategy. 

All of this and more comes from the latest market update that board members and executives in all financial firms should take note of.

KPMG’s new report is titled Voices on 2030 and tracks its main predictions for the financial sector over the next eight years based on the opinions of 32 leading industry commentators, CEOs, CFOs and board members worldwide. 

The group have come together in solid agreement around ESG, suggesting that any decision not to embrace it will have repercussions. 

“Every decision is an ESG decision,” the report says, “ESG criteria are embedded in lending and investment; impact potential drives capital allocation.”

It stressed that this applied to all three core components, not just the “E” (environmental) side, which, in many contexts, commands the majority of attention. 

“As stakeholder expectations evolve, your organisation will likely have no choice but to embrace ESG,” the bottom-line warning read. 

“Every stakeholder group will likely demand it — and regulators and policymakers may increasingly mandate it.”

To address this reality properly, companies needed to avoid the tick-box approach of conforming to the minimum standards set by law or stakeholder expectations. Instead, they needed to “put mission and purpose at the centre of your business” to demonstrate commitment and win essential investments.

The report contains several other expert opinions directed at boards, executives, and anyone else playing a role in financial firms’ management:

• Data and tech are taking over. Firms have been told to adapt to emerging trends like mobile communications, know-your-customer (KYC) protocols, and the onset of government-issued digital currencies to rival private cryptos. 
• The changing landscape of the 2020s – involves trends like tougher action from watchdogs, more sophisticated criminals, and new ‘metaverse’-based customer experience channels. 
• Significant shifts in the workplace. The experts have said that the landscape is trending towards diversity, corporate partnerships and hybrid working. 

“Their views differ in many interesting ways,” KPMG’s global head of financial services Judd Caplain said of the experts, “but certain themes unite them.”

“Above all, they expect the boundaries between the financial services industry’s sub-sectors  — as well as with other industries — to become increasingly blurred.”

“Concepts such as embedded finance, the platform ecosystem and the data economy may render traditional categories of financial services and providers increasingly less relevant.”

The report is based on the opinions of some of the industry’s leading players, including

• Kay Swinburne, Vice Chair of Financial Services at KPMG UK
• Suni Harford, Group Executive Lead for Sustainability at UBS
• Greg Elliot, Global Head of Tax at Standard Chartered. 

In this 88-page document, their predictions do get specific, so assuming that all will come is quite a stretch. However, we should appreciate the underlying themes running through their comments. Chiefly:

• ESG is now a core part of financial services business strategy, and we can’t change this.
• Data and tech will dominate over the next decade.
• Companies will re-evaluate their needs from the global talent pool and re-focus their priorities.