Financial institutions hold the keys to unlocking sustainability within their own operations and across industries
In the past decade, companies, their stakeholders, and society at large have focused more attention on business’s role in sustainability as the effects of climate change have become more apparent. But over the past year, something changed for CEOs worldwide. Sustainability talk turned into action as continued disruption–including upheaval from the pandemic–thrust an even greater spotlight on climate change with society calling for a transformation of economic activities and business priorities.
Transformational sustainability starts with a mindset that makes sustainability an integral part of an organization’s values and business strategy, fundamentally reshaping business models as well as delivering on community needs. One way banks and financial institutions can drive this transformation is by embracing digital technologies strategically and operationally to drive sustainability outcomes while expanding economic opportunities.
In this context, unlike most other industries, banking and financial market institutions (BFM) have two key ways they can execute on the world’s agenda for transformational sustainability:
- Leverage exponential technologies, like data, AI and cloud, to measure and embed sustainability into their IT architectures and applications - looking to opportunities beyond simply responding to regulatory demands to reduce the environmental footprint of their operations (consistent with other industries).
- Aid retail and corporate clients engaged in sustainability and help address return on investment concerns by better allocating financing and investments supporting the world’s transition to a “green economy” and other sustainable outcomes. (BFM-specific)
Therefore, sustainability is both an operational challenge and a business opportunity. In a recent IBM Institute for Business Value study that polled over 3,000 CEOs, including nearly 300 banking and financial market executives in 40 countries, we found that 80% of BFM CEOs expect sustainability investments to improve business results in the next 5 years. BFM leaders also recognize that executing promptly on transformational sustainability is among the top 3 operational challenges, preceded only by heightened cyber security risks and demanding regulations. CEOs feel the pressure from their Board members (72%) and community of investors (57%) who are calling for radical transparency about their sustainability programs. To respond, BFM CEOs are engaging a wide swath of their leadership teams and departments to make the right investments in sustainability initiatives. BFM CEOs have taken a broader approach than CEOs in other industries starting with engagement of their Chief Financial Officer (69%) and Chief Operations Officer (45%).
Accelerating sustainability is about mindset shift in the usage of exponential technologies
The leadership teams of banks and financial services institutions are engaged to reduce the environmental footprint, measuring their own sustainability while investing in exponential technology like data, artificial intelligence, and hybrid cloud.
We know that a company’s transition to hybrid cloud is an essential business approach, but it is also an important factor in sustainability. Transforming the operating model - how the workforce collaborates and operates with workflows on hybrid cloud - allows for a more energy-efficient usage of data centers and computing environments. According to the IDC, cloud computing could eliminate a billion metric tons of CO2 emissions over the next four years.
The transformation of banks’ data centers is an opportunity to further advance sustainability by increasing the adoption of renewable energy sources. In the UK, for example, IBM Cloud already uses a network of data centers that are powered 100% by renewable electricity. In Spain, BBVA upgraded their data centers leading to the reduction of the firm’s energy use by 50% and, in a period of five years, expect to cut BBVA’s carbon gasses in half.
As financial institutions adopt a hybrid cloud approach, a massive amount of data now exists, which can help financial firms and companies in all industries understand their environmental footprint. However, that data largely remains scattered across different databases, systems, and locations, making it hard for all stakeholders to access and understand. AI-powered software can help businesses take advantage of sustainability insights across their operations. This can make an impact in areas like:
- extending the life of physical assets,
- creating more efficient and resilient supply chains,
- understanding the impact of acute climate events and chronic physical climate risk, and
- analyzing and reporting on ESG data and initiatives.
This is key as good governance of data, AI and IT leads to better sustainability.
Sustainability data and insights underpin relevant business opportunities for financial services ecosystems
Sustainability has become an opportunity to differentiate and expand financial services businesses.
By the end of 2021, 265 banks representing more than 45% of global banking assets had signed up to the UN’s “Principles for Responsible Banking,” leading to the development of products and solutions to meet these sustainability commitments. This commitment has included a greater focus by financial institutions on tracking financed emissions, forcing the companies they invest in, in all industries to examine and reduce their carbon footprint. Sustainability, therefore, has become an opportunity to differentiate and expand financial services businesses.
Our new CEO study reveals that executives in all industries feel pressure about executing on sustainability, amidst business challenges and uncertainty. 59% of the world’s CEOs indicate that unclear return on investments (ROI) and economic benefits are the biggest challenges in achieving their sustainability objectives, and 44% mention lack of insights from data. Banks and financial institutions closely monitor and rely on other industries’ transparency regarding their sustainability initiatives. In this regard, they are instrumental in mitigating the sustainability concerns of all other industries, granting short- and medium-term value in terms of financial levers.
Banks provide sustainable financing and prioritized access to capital markets through preferred inclusion in sustainable investment products for institutional and retail clients. Banks and fintechs are also collaborating to orchestrate sustainability-oriented data platforms that allow their ecosystem of clients and partners to extract value from participating in a standardized and transparent exchange of information.
An action guide to accelerate sustainability as a business opportunity
In a 2022 global outlook report, IBM draws from 12 months of research with leaders in the financial services industry and found a top imperative for banks today is in finding viable sustainability models that balance business value and stakeholder expectations. The industry is now developing and deploying initiatives to meet these commitments, while helping ensure targeted investments deliver on overall business and financial objectives.
These initiatives are emerging across 4 broad areas:
- Incorporating climate and sustainability data and insight to help manage risks,
- addressing the sustainability of banking operations—the financial industry’s journey to net-zero,
- developing new products and services to support the sustainability agenda, and
- reporting on sustainability performance.
Shanker Ramamurthy is the Managing Partner of IBM’s Global Banking & Financial Markets consulting practice, President of the IBM Industry Academy and a board member of the Banking Industry Architecture Network.
Brigid McDermott leads IBM’s industry technology focus as General Manager, Global Financial Services at IBM.
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