The financial services sector has a key role to play in ESG sustainability
Tristan Dennis, Sales Account Manager, Mint Group.
If there’s one thing the recent floods in KwaZulu-Natal and the Eastern Cape, as well as last year’s riots in KZN, have made clear, it’s that it’s time to pretend to talk about sustainability, especially when it comes to environmental, social and governance (ESG) issues, is over.
That’s the view of Tristan Dennis, Head of Commercial Accounts at Mint Group, who argues that organizations in the financial services industry (ISPs) have a key role to play in this regard.
He points out that there is a growing awareness of the link between sustainability and finance – generally referred to as “sustainable finance” – not only globally, but also in South Africa. Indeed, the National Treasury revised project of its 2020 technical paper: “Financing a Sustainable Economy”, which was published in October 2021, recognizes that sustainability goes well beyond the environmental focus of the previous paper.
Aimed at all players in the local finance sector, including banks, pension funds, insurance, asset management and capital markets, the National Treasury report recognizes that economic, environmental and social risks long term are linked. It therefore aims to encourage more sustainable long-term economic assets, activities and projects that encompass both the concepts of green and social finance.
For example, while climate change is traditionally seen as an environmental issue, the report highlights that it is also a social and economic issue. Indeed, it can impact not only individuals, especially the vulnerable, as the recent floods have tragically demonstrated, but also critical infrastructure such as the port of Durban, main roads, factories and agricultural land. This widespread destruction will also negatively affect the country’s ability to grow the economy, create jobs and ensure food security.
Better understanding the exposure to environmental, social and governance risks facing the financial sector is absolutely essential to achieving the financial stability needed to protect the South African economy and its citizens from external shocks, according to the Treasury report. major effects on the financial system. It is also essential for building resilience through creditworthiness and effective risk management, as well as balanced and inclusive growth.
Sustainable finance, the report continues, therefore requires the identification and mitigation of risks – including environmental and social risks – as well as the identification and implementation of economic opportunities that are socially, environmentally and economically beneficial. .
For South Africa to successfully transition to what the National Treasury calls a “climate resilient economy” and achieve financial stability, the financial sector will need to “assess exposure and opportunities to environmental and social risks at its portfolio and its transactions; disclose and mitigate these risks; and link them to products, activities and capital allocations. »
However, Dennis notes that much of the attention paid to sustainability by the financial services industry has traditionally been directed inward, with organizations resorting to an almost box-ticking public relations exercise to demonstrate their “ecology”. These efforts range from implementing power-saving protocols or going digital to save paper, to reducing the organization’s footprint by allowing customers to interact with it remotely.
“The COVID-19 pandemic has accelerated the glacial pace of workplace transformation as it has become clear that the concept of the remote workplace is no longer a futuristic goal but a functional necessity. Smart use of technology that, for example, enables employees to share knowledge and work more efficiently regardless of their location, or enables virtual interactions with customers, is no longer an asset, but a question. of business survival – in other words, the sustainability of the business,” he says.
However, Dennis acknowledges that sustainability, as described in the National Treasury report, is a complex issue that many organizations struggle to address, as it requires both inward and outward attention. ‘outside.
“Many organizations in Asia have created a new position, that of Chief Sustainability Officer (CSO), to help their organizations navigate the many and varied aspects of sustainability. Maybe that’s something local organizations need to start considering as well,” he adds.
He points out that there are a number of technologies that can help ISP organizations in their sustainability efforts. This includes the use and integration of big data, artificial intelligence, machine learning, mobile platforms, blockchain and IOT. Some or all of these may be incorporated into the products and services that FSIs may use, for example, to serve their customers; ensure they appoint product vendors and service providers who themselves operate sustainably; or conducting due diligence on long-term investment opportunities to determine their long-term ESG impact.
However, knowing which technologies to adopt – or even where to start – can be daunting. But there is no shortage of organizations ready and able to help. Microsoft, for example, has developed an industry-specific “sustainable transformation landscape” to provide an overarching framework – a “sustainable business model” supported by three pillars – that companies can follow on their ESG journey. It defines what ISP companies should consider now, next, and beyond across these pillars: Sustainable Platform; lasting collaboration; and sustainable ecosystem.
“Much of the benefits of investments made by FSIs today to foster the kind of sustainability envisioned in the National Treasury report will only be realized by future generations. And that’s what it’s all about. The fact is, ISFs have the power – and the money – to make a real difference with the tools they currently have. All they need is a commitment to do it,” concludes Dennis.