Today, sustainability is becoming a business priority across all industries. None more so than in banking and financial services, where many banks and financial institutions have started to embrace sustainability by integrating Environmental, Social and Corporate Governance (ESG) into their business strategies. New Business talks to the experts.

Q: Ben, as the founding director of the Oxford Sustainable Finance Programme and the Lombard Odier Associate Professor of Sustainable Finance at the University of Oxford, can you tell us more about what sustainable finance is?

Ben: Sustainable finance is a structural change in the demand and provision of financial products and services with wide ranging implications for financial institutions and the financial system. It is also mission critical for tackling the profound environmental and social challenges facing humanity.

Q: Matt, as VP of Global Financial Services, Mobiquity, you must work with banks and financial institutions on a daily basis, how does sustainable finance help your partners in the banking and finance industry?

Matt: Creating a sustainable future helps banks and financial institutions in a number of ways.

It enables banks and financial institutions to carve out new revenue streams and business opportunities as customer expectations continue to change. Today, we're seeing increasingly eco-conscious customers across all industries, and customers may decide to vote with their feet if banks continue to ignore sustainability practices.

By embracing digital to improve sustainability, banks can also improve operational efficiency while at the same time making their business operations greener. It's a win-win for those businesses that open the door to a sustainable future.

Our research, "Benchmarking for Sustainable Banking", shows that first and foremost most UK banks are not doing enough to be sustainable, with less than a third (31%) of UK banking executives viewing sustainability as a top concern in the boardroom. It also reveals that under half of UK banks (45%) are planning for sustainability initiatives, citing the main barriers to becoming more sustainable as COVID-19 and industry demands.

If this continues, not only will this have a large impact on the environment, but in the future, banks will find that attracting customers and retaining talent becomes more and more difficult. In short, they may risk being left behind by the competition as the role of the bank in society continues to change.

Q: Ben:  You provided an industry viewpoint contribution to the Mobiquity report, what was the key takeaway from the findings?

Ben: Growing regulatory and social pressure will also require banks to align their loan books and activities with net zero and other environmental objectives. In addition to supporting clients to transition towards sustainability, banks will also need to become much more sustainable and themselves achieve net zero, not only for their financed emissions, but for their own activities and operations. Measuring and managing risks and opportunities across myriad client relationships across different sectors and geographies will also require new ways of tracking exposures.

All of these require changes in practices and enabling investments in digital capabilities, including but not limited to: the greater use of geospatial data and analytics to support lending decisions, new modelling capabilities to undertake climate stress tests, transaction enabling infrastructure to support transition finance including new sustainability-linked loans, and platforms that enable new forms of client engagement with sustainability and impact investing.

Q: You both touched on the opportunity for banks to improve internal and external business efficiencies by becoming more sustainable. What is the role of digital technology in this?

Matt: Digital is at the heart of it. Combining digital with a human touch will drive sustainability and future-proof business as we enter a new world post-COVID-19.

Our research supports this, as almost three quarters (72%) of UK banks understand that digital technology can make their business operations greener. The next step is using digital technologies such as intelligent automation, IoT and machine learning to improve sustainability and in turn improve business outcomes.

The benefits may not be immediately obvious, however by embracing digitalisation to drive sustainability,
banks can reduce costs, increase operational efficiency across the business and increase customer retention and growth. This is corroborated in our report, which shows that 2 in 5 (40%) UK banks said that harnessing sustainability initiatives led to cost savings and customer retention and growth.

Q: Finally, how can businesses embrace this moving forward and what does the future hold for sustainable banking?

Matt: The challenge that exists for the banking industry is ensuring that businesses engage with, and overcome, roadblocks in the adoption of sustainability initiatives. Around a third (31%) of banking executives in the UK referenced COVID-19 and industry demands as the main barrier to being more sustainable. Rather than seeing COVID-19 and industry demands as a barrier, we should refocus these challenges as opportunities.

By harnessing digital innovation that retains a human touch, banks can optimise business operations to be more efficient, profitable and sustainable. Our report demonstrates that banks are starting to realise the huge potential that digital technology brings, in contributing to sustainable initiatives. Indeed, 2 in 5 banks say that they are using intelligent automation (41%) and digitising all paper processes (40%) to be more sustainable. This was followed by helping customers to be greener by encouraging less travel to the branch (39%), and collaborating with suppliers and partners to extract value from data centres (37%) and machine learning (36%). For those concerned about data centre energy consumption, this energy will be recycled to power the homes and offices of the future - creating a 360 sustainable ecosystem.

Banks must place sustainability firmly on the agenda if they are to retain and attract customers in the future. As the future generations of customers evolve, we'll see both traditional and new age customers moving to those banks with an eco-conscience. Sustainable banking isn't just good for the environment, it's also better for your business.