Does more need to be done to hold banks and the financial services industry to account for their ESG practices?

Mark Woodward, Investor-Director at Flotilla

The financial sector is in the foothills of sustainability action. Transparency and accountability are increasing, but consistency is a major issue. Now is the time for private players accelerate the green transition together.

Thankfully, you can’t just label something as sustainable any more – the proof must be tangible. From a financial services point of view, the Financial Conduct Authority has now put the Sustainability Disclosure Requirements (SDR) into place, which makes regular reporting mandatory for UK firms marketing funds as sustainable. That’s helping, but there’s still a lot of uncertainty about who and what will be captured by SDR.

Transparency is just the starting point, there’s got to be some kind of agreement about what firms are being transparent about. Processes must be aligned so that everyone can understand the significance and real-life impact of claims – especially the consumer.

Regulations and responsibility

Anti-greenwashing measures are incredibly important. Many consumers don’t yet grasp the subtle nuances in the language used to describe ESG financial products, whether it’s ‘sustainable’, ‘carbon neutral’, or ‘green’, so anti-greenwashing measures are essential for their protection.

The public is at the very beginning of its carbon literacy journey. Moving to a position of greater transparency can only fuel progress towards informed investment decisions. But regulations can only go so far. The onus should be on the business to prove their environmental claims, rather than on the authorities to catch them out.

No consumer will ever be fully confident decoding the minefield of different industry regulations, and they shouldn’t have to be. Financial services firms have a responsibility to put their investors’ needs first – including providing interpretable evidence about green products and services

Clampdowns from external regulators have their place, but we need to see more corporate responsibility at the board level. If you’re waiting to get caught for doing something wrong, then you’re more likely to be pushing the boundaries in the meantime. Instead, you could be building environmental agility into your business model now so that when new requirements are imposed or regulators come knocking, you’re prepared.

ESG doesn’t need to be a political issue

Political swings are not a reason to avoid or ignore ESG. The impact of any political change regarding climate policies is likely to be temporary, but businesses’ ESG commitments and KPIs are not associated with government budgets, so there’s no need for them to be a political football.

In an ideal world, ESG would be a cross-party concern because it’s a multi-decade issue. Unfortunately, there are always going to be varying commitments from different parties due to budgeting concerns and various other issues in play. For this reason, I believe that the green transition will be driven by private players.

We are starting to see businesses embrace the positive impacts of ESG on their employees and culture, and the knock-on impacts of reduced risk, reduced supply chain disruption, opportunities to enter new markets and save costs.

ESG is being embraced as a value-add. As this trend develops, private businesses will overtake the government as the driving force for the green transition.

The power of collaboration

It’s currently very difficult to be a truly ‘green’ investor.

The Fintech world is balancing multiple investor and stakeholder priorities, as well as responding to fluctuating conditions. The perfect combination of legislation, regulation and cross-sector collaboration via alliances could lead to the development of a system for labelling funds that can be better understood by all parties, helping to remove some of the complexity that compounds consumer confusion. This isn’t going to come from external regulations – it must be forged by industry alliances.

Collaboration is the key to sustainability. Together, peers have a unique understanding of the relevant challenges facing their industry. If you’re willing to be transparent about the issue, you can accelerate positive change much faster than in isolation. The result isn’t just a faster resolution to those challenges, it’s a potential improvement of the reputation of the entire fintech and financial services industries.

It’s now up to leaders of the fintech and financial services industries to accelerate action from every corner, not just representatives of the biggest companies who are likely to fall under the regulator’s eye.


Explore more