ESG
ESG in the financial sector requires clear decisions regarding implementation
KEY IMPLICATIONS OF ESG FOR STRATEGY EXECUTION
Turner aims to nurture its relationships by providing timely, fresh, and relevant insights into its markets and the Strategy Execution challenges they face. On Thursday, April 20, Turner’s clients and Turner employees set sail for a unique new nature reserve: the Marker Wadden. Out on the water and surrounded by nature, they discussed the opportunities the energy transition offers the financial sector.
- Financial Sector Climate Commitment – In 2019, the Dutch financial sector committed to contributing to the implementation of the Paris Agreement and the Climate Agreement.
- Since then, banks, insurance companies, pension funds, and asset managers have been reporting on their carbon footprints and have developed action plans to significantly reduce carbon emissions.
- A unique initiative through which the financial sector sent a strong message about the importance of addressing climate change.
- But do they experience this commitment as “relief” or as an “obligation”?
All organizations in the Dutch financial sector signed the Climate Commitment in 2019. By doing so, they committed to contributing to the implementation of the climate goals set out in the Paris Agreement and the Dutch Climate Agreement. But do they view their commitment as something they intrinsically desire based on their own aspirations, or as something that must be done simply because it was agreed upon in the accord? In short, as a “source of inspiration” or as an “obligation”?
How are financial institutions putting their ESG goals into practice? How far along are they in their implementation, and what challenges are they facing? These topics were discussed during the Marker Wadden Event recently organized by Turner. We took the opportunity to conduct a benchmark study among the 30 participating organizations, primarily banks and insurers. And what did we find? The participating banks and insurers view ESG as a priority but are still struggling with their role in the supply chain and with translating their climate ambitions into concrete actions. In short: the commitment to ESG is intrinsically motivated, but the transition to implementation is still falling short.
ESG: More of a Guidance Than a Requirement
Banks and insurers have generally fully integrated the climate ambitions outlined in the climate commitment into their organization-wide mission and vision (38% and 47%), according to the benchmark study conducted during the event. The majority (63%) have included specific percentages for their reduction targets and also focus on other ESG aspects (77%). The main motivation for incorporating climate ambitions into their mission and vision is that the organizations want to contribute to sustainable development (93%). Compliance with laws and regulations is a less significant motivator (47%). Only then do reasons such as responding to customer needs, improving risk management, and enhancing employer appeal come into play (20%). This confirms that the ESG theme is perceived more as an “enlightenment” than as yet another obligation.
New ESG Products and Framework Conditions
The action plans of banks and insurers primarily impact the mission, vision, and (product) strategy of organizations. Roadmaps have been drawn up, Portfolios are being recalibrated based on strict priorities (“baselined”), new products such as loans based on demonstrable sustainability—so-called sustainability-linked loans— have been developed, and these ESG loans have been given higher priority. According to participants in the benchmark study, the actual implementation of the action plans will place significant demands on the organization, particularly in the areas of data, behavior, and culture. Creating insight and awareness is a key prerequisite in this regard, for example, when making investment decisions based on sustainability criteria.
Execution requires more than just ESG plans on paper
A majority of the participating organizations are quite capable to very capable of implementing the action plans (average score of 7, 52+10%). At the same time, a significant group of organizations is still figuring things out (28+10%) or has not even started yet (10%). These organizations struggle primarily with gaining buy-in from their supply chain partners (customers and shareholders), defining concrete reduction targets, and the availability and quality of relevant data. Translating objectives into concrete actions and collaborating with stakeholders proves to be a significant challenge. Participants report that, in practice, the time and attention they devote to ESG also competes with other, more urgent matters, such as integrations and new regulations.
A successful strategy depends on the strength of its execution
On paper, banks and insurers seem well on their way to contributing to sustainable development in the Netherlands. Climate ambitions are part of their mission and vision, and their action plans are leading to new products and choices in their portfolios. However, some of these organizations are still finding their footing when it comes to execution and are struggling with their role in the chain and maintaining focus. This is noteworthy, because implementing these action plans will still demand a great deal from the organizations themselves, as well as from customers and other stakeholders. Implementing these kinds of changes requires courage, a clear vision, and well-defined choices to secure the necessary support both within and outside the organization. As always, legislation will help in this regard, but a successful strategy depends above all on the strength of the execution: to what extent are organizations truly capable of working with their stakeholders to turn their “enlightenment” into concrete results?
Would you like to know how your organization stacks up against the benchmark and how to translate ESG goals into action? If so, please contact one of our consultants
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