The Green Deal and the resulting taxonomy as well as the Sustainable Finance Disclosure Regulation are keeping many banks busy at the moment. Rightly so – we don’t have much time left. To meet the Paris Climate Agreement, everyone must act.
The European Green Deal, national environmental targets and the EU taxonomy are putting enormous pressure on banks to change. They should start managing financial flows in a way that actively pays towards the 1.5 degree target and contributes to national climate and environmental goals. Or at least not cause significant harm. The regulatory factors have not yet been fully determined. That means there is a lot of uncertainty in the market. Stress tests by financial market regulators have been announced, but there is no clear regulatory framework yet. We are experiencing a certain wait-and-see attitude in the market. But my colleagues and I are working with banks that are already on their way. What we have learned from their representatives, I would like to share with you.
1. Leadership Commitment
Start simple: Instead of waiting for the ready-made “rules,” we have seen banks that have boldly started the transformation to a sustainable bank. And they did so with a clear commitment in leadership. A good starting point is the selection of clear sustainability goals. This can then be used to derive a framework of its own as a definition for sustainable or green finance. This framework serves as a basis and gives the company room for maneuver in dealing with sustainability.
Don’t “just” make it a management issue: According to a study by Deloitte, the responsibility for implementing measures lies largely in board and strategy and CSR departments. This is not enough for the banks we encounter. The issue concerns everyone in the bank and measures must be initiated and implemented holistically. But to get this ball rolling, you need an authentic commitment from the leadership.
2. Team Commitment
Cross-functionality: Banks that have already embarked on the sustainable finance journey know that the answers cannot be found in one department alone. A multidisciplinary team that is nimble and agile is the best choice to tinker together on this task. The stable basis for this team remains a common goal and purpose that is clear to all. This allows results to be delivered quickly and iteratively.
Purpose attracts: It is not only customers who are increasingly looking for banks that go one step further. Employees can also identify with this vision. Customer advisors see sense in the new additional workloads imposed by regulation. Therefore, it is not a problem to introduce an item for additional sustainability-related evidence on the checklist for financial statements when a new product, e.g. financing, is sold.
From grass-roots movement to common strategy: most banks have already picked up the thread in many places. Regulatory affairs, risk management, corporate finance and CSR departments in particular have set their own actions. The task now is to bring these movements together. Two nice ways to break through these silos, which we have tried ourselves with clients, are participatory strategy processes and cross-departmental learning journeys.
Retain adaptability: With the new guidelines and regulations, there will be a lot more change. It is not yet possible to predict what the supervisory authorities will then focus on. (But the sooner you face up to your own status quo, the easier it will be to respond to change.
3. Engage Your Customers
The proof of the pudding is in the eating: “Our customers don’t ask for it,” say the banks. “Our banks don’t offer anything in this regard,” say the customers. Here, the attitude from design thinking helps: explore the customers’ problem space and begin to make offers in small hypotheses and experiments.
From internal to external: role models such as Vaude and Patagonia live it and focus their communication completely on the topic of ESG. These companies live their values transparently to the outside world and demand even bolder steps from policymakers. How can banks make an impact? By presenting information in customer language, for example? Or by sharing success stories?
4. Product Development
Iterative development and continuous delivery: The “Agile” trend continues because iterative and continuous delivery and reflection remains the key to agility. We are seeing some banks that have already integrated and embraced the agile way of working very well: The delivery of new financial products after each sprint often already works well. Now it’s time to rethink our own Definition of Done here. What conditions must financial products now meet? What requirements do the bank and the team want the products to meet?
Acknowledge limits: In new customer business, it’s no problem to pay attention to sustainability. But “cleaning up” the existing portfolio is much more challenging. Again, it’s a good idea to think in terms of experiments and hypotheses. The way banks manage risks and product portfolios – in this case, according to internally defined sustainability criteria – is a great lever.
5. Strong Partners
There are offers for partnerships that are being explored, for example, the Green Finance Alliance.
What these examples show me is that an unfinished set of rules and checks is no reason not to just get started. The experts from the banks know where to start. If they don’t, then the knowledge can still be learned and added from outside. The issue is a big one, but with united forces it can be handled. Moreover, it is precisely from uncertainty that creativity, motivation and courage emerge. Now we have the chance to become role models.