Around the globe, business leaders identify productivity and profitability as their top priorities, but they pinpoint sustainability as one of their biggest challenges, alongside cybersecurity, according to recent research by the IBM Institute for Business Value (IBV). The 2023 report, ‘CEO decisionmaking in the age of AI’, also reveals that roughly 50% of CEOs and their executive teams now have compensation directly tied to sustainability goals, a significant jump from a year ago when the figure was just 15%. Complicating the issue is sustainability’s expanding definition and a level of organisational uncertainty around what qualifies as appropriate metrics. There’s also doubt about the trustworthiness of sustainability reporting. Just 45% of CEOs stated they had confidence in the ability of their organisations to accurately report on ESG strategies and initiatives. To make matters worse, public trust has fallen in what is being reported. Getting things wrong clearly risks damaging credibility, so tracking and measuring sustainability is a huge issue for businesses. Fortunately, senior executives in the financial services sector are increasingly viewing sustainability as a source of opportunity. Bridging the gap between formulating aspirational ESG goals and turning them into a reality is getting a lot easier as a result of a growth in green finance. Part of the reason for the stance of the financial services sector is the growing pressure from governments, investors, clients and the public as a whole, for it to align its activities with society’s goals. But there is also the enticement of the value of the sustainability pot. According to McKinsey, spending on physical assets on the road to net-zero could reach around $275 trillion by 2050 – $9.2 trillion per year on average – an annual increase of $3.5 trillion, equivalent to about half of global corporate profits, one-quarter of total tax revenues and 7% of household spending.1 The global market for green finance is expected to reach $3.7 trillion by 2031.2 This represents a significant opportunity for banks to generate new revenue and grow their businesses. However, the task of banks is not only to provide green financing, but also to help the whole economy move to a greener footing, which is resulting in banking CEOs coming under more pressure to be seen to be doing something substantive in the sustainability space. Measuring the size of the challenge Banking leaders want to be visibly active; they want to talk to their customers, employees, communities and stakeholders at large. Their aim is to set sustainability standards; they want to create multi-year internal targets and roadmaps setting out how to get there. Internally, they’re also looking to orchestrate the funds needed for their sustainability programmes. However, one big issue is that sustainability is a global challenge. To tackle it there needs to be harmonised standards and regulations around the world. It’s a little bit fragmented today, which is creating yet more challenges for everyone involved. Of course, the banks want to pass audits and seamlessly ingest changing regulations so as to ensure its business as usual. But looking at sustainability solely through a risk perspective lens could result in missed opportunities. When a transformational approach is adopted in regard to sustainability, opportunities become available based around implementing beneficial technologies, data sharing, building frameworks, ingesting libraries and creating scoring and monitoring processes, especially around energy and resource use. But where do you start from a lender’s perspective? Well, demands for transparent and trustworthy data sources to make informed banking decisions have never been greater. Underpinning this is the need of data availability and technological capabilities to ascertain and quantify the risks and opportunities to ensure that green sustainable investing is a true driver for growth and profitability. It’s all about getting the right use of holistic data points, complimented by the correct expertise and insights, if sustainable banking ambitions are to be turned into meaningful actions. 45% of CEOs stated they had confidence in the ability of their organisations to accurately report on ESG strategies and initiatives. Finance Monthly. Investment 71
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