A greener outlook – but what more do we need to do?
Is this the point when we will finally see the financial services landscape go fully green? Change has certainly begun, in the form of new products and new job functions across the sector, as well as improved data gathering. But it is clear there remains a long way to go.
There is no doubt that the financial services sector is on a green journey. However, much of the shift that we have seen towards green initiatives to date has been driven by customer demand, rather than government or regulatory drivers, according to recent research carried out by law firm TLT and delivered in its report ‘Levelling the playing field for green finance.
The research found that more than half (55%) of financial services firms say that green finance is critical or very important to their business. And the good news is that many have begun taking steps towards green finance initiatives.
Yet the research also showed that the demand for green finance is coming from investors and customers, much more so than from regulators, which could be hampering progress.
Imogen Benson, associate at TLT, explains: “A lot of progress has already been made in terms of putting green finance on the banking agenda, but this has mainly been driven by individuals, who play an important role but don’t necessarily have the power to make a wholesale market change. There’s a huge role for regulation to play in setting clear market standards and enabling firms to move forward.”
When asked what they had done so far, 60% of firms said they had set a strategy, while half had begun gathering data.
Almost four in ten firms (39%) have already launched green finance products or offerings, with more than half (53%) planning to do this in the next year. The majority of respondents (70%) said that they were exploring new technologies to support their green finance strategies.
Bold ambition is needed
The report’s authors believe that all finance will one day have an element of green. Yet they say that progress needs to be made more quickly: “COP26 made it clear that faster progress is needed, which can only come from bold ambitions, clear rules and expectations, accurate measurement and greater industry collaboration.”
The largest barrier to adopting green finance was found to be cost, closely followed by macroeconomic concerns and a lack of relevant expertise on a company’s board.
Measurability was also seen as a barrier by some 32%. How green is green? And how do you measure that?
There is certainly room for regulation and industry standardising to play a part here.
Robin Penfold, partner at TLT, says: “Firms have made a lot of progress, but everyone is still looking around the room wondering what everyone else is doing.”
The report was based on interviews with 119 senior decision-makers at UK firms, including banks, lenders, asset/wealth managers, VC and PE firms, and also set out a number of green finance trends likely to be on the agenda throughout 2022:
- The market for green finance products/offerings is set to become increasingly competitive. Much of the focus so far has been on the setup stage, with more than half of firms planning to launch products/offerings in the next year.
- Sovereign wealth funds are increasingly considering ESG in their investment process, with more than 70% stating that is now the case (up from just 24% a year earlier) .
- We are likely to see more green finance experts on company boards. Lack of expertise on boards was cited as one of the top three barriers to green finance in the TLT report. However, the majority (58%) of firms have already appointed an experienced, dedicated, C-level or non-executive expert in green finance.
- New technologies will continue to play a big part in supporting green finance strategies, with 70% of firms already using new technologies.
- Demand for data from customers will increase – customers have been driving change in green finance, and will increasingly want green measurements.