Turning climate ambitions into sustainable business opportunities
The sector has a unique role to play in enabling more sustainable economies
Conversations on greenhouse gases (GHG) tend to focus on major emitters such as manufacturers, energy companies, and various methods of transportation. Financial services firms are not necessarily top of mind – yet as important allocators of capital, these companies have a crucial role to play in the global transition towards a greener future.
Currently, Europe is leading the demand for sustainability performance in all sectors – including financial services.1 Many European financial firms are embracing the power of data to help achieve their decarbonization targets and have made this a priority. CEOs are putting ESG and decarbonization at the core of their strategy and at the top of their agenda.
But Europe is the exception rather than the rule. In North America and elsewhere, the leaders at banks and insurance companies may be cognizant of the need to address emissions – but for many, other issues are taking precedence.
That’s reflected in the financial sector’s slow progress along the path to emissions reductions. In our recent report, A world in balance: Why sustainability ambition is not translating into action, the Capgemini Research Institute notes just 51% of executives in this sector agree their organization has a clearly defined priority list of sustainability initiatives to be implemented in the next three years. What’s more, only 34% of those surveyed admit they are redesigning their organization’s business and operating models to be more sustainable.
Meanwhile, regulators outside of Europe are starting to demand more accountability. In March 2022, the US Securities and Exchange Commission proposed rules that would require financial services companies to disclose information on climate-related risks, including GHG emissions. Various countries are working on regulations to bring sustainability reporting in line with financial reporting.
In my discussions with senior line of business executives, many understand the need to decarbonize their operations, but they have questions and concerns about how to measure and monitor GHG emissions at their portfolio and sector levels. At Capgemini, we’ve developed a strategy for that.
Taking the right steps forward
It starts by adopting a structured approach, enabled by a simple framework, to guide firms through the full decarbonization lifecycle – from ambition to action. As with any enterprise-spanning transformation, success depends upon executives becoming champions of the cause and integrating sustainability data into their decision-making processes.
Business leaders will find it useful to organize their strategy into sustainability themes. These will vary by organization, but sample themes include decarbonizing operations, pursuing specific ESG goals, or building investments that will help finance the transition to a more sustainable economy.
For each theme, data must be identified, sourced, cleansed, analyzed, and acted upon. This requires a well-organized framework:
· Enterprises must define what to measure and why it’s important
· It’s vital to identify and address any potential stumbling blocks in the process
· Once sustainability data is collected into a centralized sustainable data repository and analyzed, there must be a plan to integrate the insights derived from it into decision making
Carbon accounting challenges and risks
Banks and insurers are well-versed with financial accounting and the requirements are well-defined. But there is no carbon accounting equivalent of the general ledger. Measuring an organization’s GHG emissions is a complex process. Companies must navigate a plethora of standards and methodologies to identify and measure while regulations continue to evolve.
It may be tempting to adopt a wait-and-see approach but there are significant downsides to this strategy – not only from an obvious environmental perspective but also because firms stand to miss business opportunities in the near future:
· The risks imposed by climate change: Across the US and around the globe, extreme weather events are becoming more frequent and more severe. Whether it’s investing in a business or underwriting an insurance policy, financial services firms can incentivize clients to become better eco-stewards, thereby minimizing their own exposure to climate risk.
· Energy transition opens new opportunities: The transformation to a more sustainable economy is creating new investment opportunities. Most notably, the EU taxonomy is setting the sustainability cadence for the rest of the world, and the US Inflation Reduction Act – touted as the most significant climate legislation in American history – earmarks $369 billion to energy security and climate change initiatives over the next 10 years. This includes compelling incentives for cleaner energy and manufacturing as part of a plan to reduce carbon emissions by 40% by 2030. The legislation is expected to generate a broad range of opportunities – from electric vehicles, renewable energy, and low-carbon construction products to R&D focused on cleantech and low-carbon materials. All of these will require investments, insurance, and other financial services.
· Answering the brand ethos: A track record for genuinely sustainable action is a powerful tool for building one’s brand – especially with people in younger demographics. Millennials have embraced sustainability as a way of life and will measure green performance when making investment decisions. According to the 2022 World Wealth Report by Capgemini Research Institute, 71% of high-net-worth individuals under 40 cite ESG as an important investment objective.
· Staying ahead of the regulators: The regulatory landscape continues to evolve globally. Increasingly, it will be essential for all organizations – including those in the financial services sector – to have the processes in place to be able to combat greenwashing and quickly comply with regulatory changes or face penalties.
Leadership’s role
The good news is financial services companies have a key leadership role to play in guiding economies as they transition to a carbon-neutral future by leveraging data to turn green ambition into action. And within, the leaders in these organizations hold immense power to the strategic decisions towards sustainability.
As a major strategic partner for the financial services sector, Capgemini has embraced sustainability as a core business objective. For example, Capgemini was one of the first companies globally to have its “net-zero emissions” targets validated according to the new tighter SBTi (Science-Based Targets initiative) net-zero standard published at the end of 2021. Thanks to the progress achieved by Capgemini in 2022, the Group was admitted to the Dow Jones Sustainability Index (DJSI) Europe at the end of the year.2
Our clients benefit from Capgemini’s deep knowledge of and experience in quantitative tracking of sustainability data. Our solutions and accelerators enable the data standardization and granularity required for effective monitoring and reporting. Our expertise can help financial services companies turn sustainability from a regulatory burden into a business opportunity.
Contact me to discuss how Capgemini can help your organization lead the global transformation to a more sustainable future by establishing a solid foundation for compliance, resiliency, and business growth.
2 https://investors.capgemini.com/en/publication/fy-2022-results/
It is interesting to note that only 51% of executives agree their organization has a clearly defined priority list of sustainability initiatives to be implemented in the next three years!! Insightful article, Ramana.