Embedding Sustainable Finance into the corporate culture.
10 March 2021 has become the start of a new era for many financial services providers – the age of financial sustainability. From then on, the regulation on sustainability-related disclosure obligations in the financial services sector will apply. Sustainability risks must be made transparent, negative impacts on sustainability must also be made transparent, and information on the sustainability of financial products must be reported and posted on the internet.
And that is just the beginning!
So now there’s an urgent need to reflect and plan in the boardrooms of banks and financial advisors. And what is even more important: Action is called for. Convincing people. Above all: get everyone in the company on board!
But where to start?
Transformation research shows us a viable path: “The art of thinking about a different reality and translating it into transformation requires a special mix of knowledge, attitude and concrete implementation skills “(Uwe Schneidewind, 2018, quoted in Stremlau, BAFIN Perspectives 2019, p. 5).
We will now look at these 3 factors – knowledge, attitude, implementation skills – with regard to the implementation of sustainability in your financial institution.
Let’s start with knowledge.
It is not easy to get an overview of all that is coming at financial institutions. From EU legislation alone, summarised in the “Sustainable Growth Financing Action Plan 2018”, comes disclosure and transparency obligations, comes the EU Taxononmy (a kind of list of definitions of what is sustainable and what is not), comes new criteria for assessing sustainable financial products, and new obligations in investment advice. The latter also includes the inclusion of sustainability aspects in the suitability test, i.e. into the investment advice given to the client.
But that is not enough.
There are also the regulations and recommendations from the European Banking Authority, which has just concluded the “Consultation Process on the Integration of ESG Factors and ESG Risks”, and the national supervisory authorities, such as BaFin with its “Sustainability Fact Sheet”. This is specifically about the recording of climate and environmental risks, which are already lying dormant as credit and market risks in the assets of banks and insurers and now have to come out into the light of day, i.e. into the balance sheets.
Faced with this huge wave, one could easily despair, couldn’t one? In our executive workshop “Bringing Sustainable Finance into Everyday Banking” you will get a structured overview and can then answer the question: “What do I really need to know and in what depth?”.
But knowledge alone is not enough!
Imagine your client advisor who dutifully recites learned sustainability product knowledge when asked by the client. But then hands the customer – without a guilty conscience – glossy brochure in a plastic bag. And the bank’s own AUDI and BMW cars with combustion engines are lined up in the bank car park. It all seems very authentically sustainable to the customer, doesn’t it?
So let’s move on to the second point.
The attitude and the sustainability culture. Dealing with new climate risk classes, new sustainably oriented business strategies, ESG decision parameters and ESG transparency obligations cannot be transported into the bank’s everyday life with just a few board resolutions. Culture cannot be prescribed! Culture must be lived by example, first of all “from the top”. It is no coincidence that the “tone from the top” also plays the first role in the examination of the risk culture by the banking supervisory authority – we can probably assume that this could also be the case for the sustainability culture in the future.
For this, the management must position itself clearly.
Also personally! And answer questions honestly, such as: What kind of world do I want to leave to my children? What can and do I personally contribute to a world worth living in? What can we do in our company to move in a sustainable direction? Is our business model sustainable at all? How can we live sustainability in our company on a daily basis? And how do I teach this to my board?
No easy questions, indeed. Take your time – especially to clarify your personal attitude! Feel the future – with understanding and heart! Enter into a structured dialogue with your colleagues – about their understanding of sustainability, climate, ecology, future. See what your employees and stakeholders already have – in terms of sustainable thinking and action! Often more than you suspect.
And now ask yourself, what kind of attitude do you need from your managers, from your employees, what new basics and skills do you need for credit, investment and personnel decisions? Empathy, ethics, agility, dialogue skills, non-linear long-term thinking, wisdom, awareness, and resilience are just some of the skills that come with the new attitude.
And so you come to point 3 in the transformation process.
It’s the ability to implement sustainability. “How do I go about it? How do I fully tap our ideas?” you will ask yourself. One thing first: the art of implementation does not lie in adopting ESG guidelines Tuesday morning in the board meeting. Rather, successful implementation follows a clear path (see chart below) that starts with integrating ESG criteria into the long-term strategy of your company’s core business and ends with reporting to stakeholders.
In addition, you have to create a number of expert teams and committees. And in this way you have already begun to change the framework, the context in your company. And in doing so, you have already created one essential element of a living sustainability culture.
But something essential is still missing.
It’s the invisible part of the company, the software, the core of the corporate culture, is found in the heads, hearts and interactions of the managers, employees and other stakeholders in your company.
Analysing corporate culture helps you to make the invisible visible, to get facts on the table, to open up discussions. Our partner “Initiative Wertvolle Unternehmenskultur” has an easy-to-use online analysis tool that will give you a concise picture of the current characteristics of the culture in your company in a short time. DO YOUR “SUSTAINABILITY QUICK CHECK” WITH US.
The necessary changes in the mindset of managers and employees can be promoted on the one hand through intensive engagement with sustainability issues and on the other hand through joint work on concrete projects. Platforms of our partners such as “The Mission” enable action-based learning in the area of the Sustainable Development Goals SDG. Or climate scenario models such as en-Roads playfully promote a deeper understanding of causes and effects in the area of climate and sustainability.
The greater their mental and emotional openness to new things, the greater is your employees’ ability to change. This mindset shift can be influenced. Mindfulness concepts play a major role here. Read more about this in our white paper “Transformation in finance: How mindset change contributes to sustainable culture change“. Or contact us if you want to implement sustainability in your company and want to know how to do it successfully.
Yours,
Friedhelm Boschert