Despite the clear evidence that geopolitical, economic, environmental and social challenges are reshaping business, finance and society, an "ESG backlash" has emerged that threatens to delay or derail the urgent action required. The triple planetary crisis of climate change, pollution and biodiversity loss, together with a wide range of social sustainability issues are already significantly impacting businesses, communities and countries, but the collective action, patient capital and long-term solutions required to address these are often at odds with the short-term incentives driving populist politics and politicians.
Traditionally, maximizing profit has been the main short-term driver for most organizations, including financial institutions. A new ethos is emerging, however: one that acknowledges profit as inseparable from longer-term economic, environmental and social sustainability. This is not driven merely by altruism but by a sound business rationale. Organizations that proactively align their strategies, activities and operations with the objectives of the Paris Agreement and U.N. Sustainable Development Goals — and financing that supports these — take advantage of opportunities to lead the transition and minimize downside costs and risks. Contrary to the claim that profit and sustainability are at odds, evidence is mounting they can be powerful allies — evidence that senior financial leaders need to share with doubters and deniers.
Tackling environmental and social sustainability issues, especially climate change mitigation and adaptation, is a catalyst for innovation. Senior corporate executives and financiers who champion sustainability can position their organizations as pioneers in clean technology and infrastructure, renewable energy, sustainable supply chains and the circular economy, at the forefront of emerging markets. Embracing sustainability encourages companies to adopt innovative practices and technologies that boost efficiency, reduce costs and drive operational excellence. This results in improved productivity and a competitive edge that contributes to higher profitability.
There are a wide range of environmental and social sustainability risks facing every company and community, from physical (e.g., extreme weather events) to transitional (e.g., policy shifts and technological advancements), with financial institutions exposed both directly and through their financing activities. The risks of asset stranding and a climate "
Successful sustainability strategies necessarily involve a long-term perspective, which aligns with the finance sector's mandate to generate sustained value for shareholders. In the modern investment landscape investors are increasingly aligning their portfolios with organizations that prioritize sustainability, recognizing the correlation between responsible business practices and long-term value creation. This is not a "woke agenda"; it is good business sense and financial practice.
Central banks and regulators now argue that the purpose of banking and finance extends beyond shareholder value to encompass the needs of a wide range of stakeholders, including customers, employees, investors and the communities in which financial institutions operate. Many senior executives, and finance professionals more broadly, agree with this view. As sustainability becomes a central concern, financial institutions and their leaders must redefine their sense of purpose to align their purpose and strategies with sustainability goals. Beyond shareholder value, today's financial leaders recognize and must communicate their role as stewards of a global ecosystem that extends beyond financial markets and metrics.
Today's consumers are more ethically conscious than ever before. They are inclined to support companies that align with their values, especially on issues as pressing as climate change. By integrating sustainable practices, financial institutions can attract and retain customers who value responsible businesses. By decarbonizing lending and investment, and genuinely embracing sustainability, banks and financial institutions can create brand loyalty and sustained growth. Honesty, transparency and accountability are essential to avoid accusations of greenwashing.
Protesters who were arrested after blocking the entrances to big-bank offices in New York say they'll keep pushing for action on climate change. "I think the intensity of protests will only grow from what it has been over the last week," one activist said.
The finance sector's ability to attract and retain top talent is increasingly tied to purpose. Professionals seek meaningful careers, driven by a desire to make a positive impact. Organizations that demonstrate a commitment to sustainability can attract and retain diverse, motivated and passionate employees who contribute to both financial success and social progress.
Since the Paris Agreement in 2015, tackling climate change has taken center stage in the global and national political discourse. More recently, issues including COVID-19, Black Lives Matter and #MeToo have brought a range of social sustainability issues to the fore, too. These have resulted in an evolving regulatory landscape that directly impacts banking and financial services, and also in response an "ESG backlash" that seeks to paint addressing environmental and social issues as anticapitalist; as bad for business and society. The increasingly complex landscape requires senior executives to tread a fine line between compliance and advocacy, and to deftly navigate the intersection of business, finance and politics.
Senior business and financial leaders hold privileged positions, able to communicate to large audiences beyond customers and employees. Executives should take advantage to continually make the ethical and commercial case for responsible business practices and sustainable finance, to educate and inform and to challenge "alternative facts" not based on robust evidence.
Financial leaders also possess significant influence through their access to decision-makers and ability to shape policy agendas. By leveraging their influence, senior executives can advocate for policy changes that align with sustainable practices and create a more conducive environment for responsible business, banking and finance — benefiting both their organizations and the broader economy.
The convergence of profit, purpose and politics in the context of environmental and social sustainability presents both challenges and opportunities for senior business and financial services executives. To successfully navigate this rapidly evolving landscape, leaders must chart a course with courage and vision that reflects the urgency of and the potential for transformative impact, integrating sustainability into the core of their organizations' strategies, activities and operations.
Banking and finance leaders have the power to shape a future where responsible and sustainable practices not only align with profit but also drive purpose and influence positive political and societal change. The intersection of these three dimensions forms the crucible where leadership, responsibility and progress converge, offering the banking and finance sector and its leaders the opportunity to lead in the face of uncertainty and create shared, sustainable prosperity for current and future generations that politicians of all parties can support.
