Finance Industry Must Lead on ESG: From Excuses to Action

How can financial firms be empowered to change their ESG stance?

The fact is, decarbonisation is a finance-centric issue because we have the power to change things. If banks weaved sustainability into their core business model and loan origination process, they could encourage consumers and businesses to make socially conscious and informed financial decisions. 

For example, choosing whether to apply for a loan to build new office space or buy existing properties based on the impact on the local ecosystem.

Seven billion people across the globe have access to financial services. If just ten percent of banks took some initiative, offering customers more sustainable products, with a small financial incentive for choosing them – e.g., a slightly lower interest rate on a loan – the impact would be huge. 

Just imagine what it would look like if banks convinced 700 million people to make more sustainable choices. Not to mention the fact these banks would be seen as green pioneers and see an influx of financially and socially conscious customers switching over to them.

Change must start with the banking industry, but we’re seeing that if you make a problem too big, people ignore it. To successfully put green products at the centre of banking, the industry needs to agitate, innovate, incubate and mainstream.

This means shaking up how problems are approached, launching innovative green banking offerings, and demonstrating these offerings can meet consumer demand and make a solid business case. Then, it’s up to the industry to adopt these sustainable models more broadly.

For example, Ecology Building Society (a member of the Global Alliance for Banking on Values) was created to put sustainable offerings at the heart of its business. 

Savings accounts offer interest gained from investments in sustainable projects like eco-friendly homes, affordable housing or community projects. 

At the same time, the bank offers mortgages for properties and projects that will have a positive environmental or social impact, and even measures and discloses the greenhouse gas impacts of its lending.

As a result, Ecology lent £65m in 2023 across 310 sustainable properties and projects. This relatively small player has made a real difference, helping to build green properties, housing co-operatives, community land trusts, woodlands and community gain projects like wind farms or sustainable transport infrastructure.

ESG-centric operating models can drive change and remain profitable. So, now it’s up to financial institutions to recognise that “the economics make sense” and follow suit. 

By mainstreaming sustainable banking and driving environmental improvements on a much grander scale, big banks could become the biggest environmental and social change makers the world has ever seen.