From ambition into action: how financial institutions can accelerate a sustainability agenda

Sustainability is a strong corporate imperative across industry sectors, yet actions on sustainability are falling short of ambitions.

Capgemini Research Institute spoke with over 2,000 executives, across industries and geography, in order to better understand this dichotomy. Based on survey responses from 219 financial services executives, the industry has tremendous opportunity to up its sustainability game. Across multiple dimensions, it is only on par or even somewhat behind in terms of actions and achievements being made within other industries. Two illustrative examples follow:

• Less than two thirds (62%) of FS executives surveyed said that sustainability is a part of their company’s leadership agenda – placing the industry behind seven of the eleven industries included in our survey.
• Only 18% of FS executives surveyed believe the business case for sustainability is clear; this percentage also lags our survey’s global industry average.

With ESG-related issues and priorities ever more front of mind with regulators, investors, consumers, and global talent, financial services does not want to be left behind. The time for the industry to act is now.

Ambition versus action: where’s the shortfall?

Those at the forefront of sustainability transformation can enjoy real financial rewards. Our research revealed that for 2020-2021, the difference in revenue per employee is 83% higher than that observed at the average company, and that the net profit margin is 9% higher than that observed at the average company. The statistics are not meant to imply that sustainability leads directly to profitability. Rather, they highlight that sustainability does not have to be solely a financial drain, and that organizations can grow and be sustainable at the same time.

Still, our research underscores a shortfall across multiple over-arching findings.

Lack of a concrete near-term sustainability agenda. Sustainability objectives are being integrated into business strategies everywhere, and many executives are adamant that sustainability is on the agenda across their organizations. But only 51% could point to a priority list of sustainability projects at their own company (see Figure 1).

Sustainability is viewed as a cost driver, not a growth investment. More often than not, a focus on improved environmental sustainability is viewed as a necessary and highly expensive evil, rather than as a potential contributor to truly transformational business growth. Over half (54%) of the FS executives in our survey shared that the principal reason for their organization’s focus on improved environmental sustainability is to pre-empt stricter future regulation. This mindset makes it difficult to unlock the internal financing and support required for current or near-term sustainability initiatives.

Sustainability investment is surprisingly low. Average annual investment in environmental sustainability initiatives and practices across industries represents only 0.91% of total revenue. And surprisingly, larger companies are investing less in ESG as a percentage of total revenue: companies with more than $10 billion in revenue were investing just 0.5% of their revenue in sustainability efforts, while companies with less than $10 billion in revenue invest on average 2% of total revenues.

New operating models are needed to achieve sustainability traction

Enterprise-wide, organizations in the FS industry are failing to design more sustainable operating models, and this work is required for companies to become truly stainable businesses. Today, only about one third of all FS executives surveyed (34%) say that a more sustainable business model is in the works, putting the industry second from the bottom among our survey participants (see Figure 2).

This shortfall bleeds over into other key business components:

• Less than half (45%) of all financial services companies are working to imbed sustainability improvements into products, and for many any such focus is relatively new. Only 22% of all organizations surveyed say that sustainability is a key component of current product design processes.
• Current findings highlight that even now less than half (47%) of financial institutions have moved to a green cloud architecture.
• Finally, only 43% of executives said that sustainability-related data is available and shared across the entire organization.

Collaboration across multiple senior leaders and business silos will be required to increase the momentum of tangible sustainability-driven changes across models, products, and supporting processes.

Technology investment can help mitigate environmental impact

As companies everywhere employ a wider range of digital technologies, they have naturally seen a rise in emissions associated with these technologies. In our survey, over half (57%) of FS respondents say that their company knows how much carbon its technology – across digital tools, apps, IT systems, and data centers – emits (see Figure 3). The good news is that this percentage is higher than that observed across the majority of surveyed industries.

But carefully reasoned technology investment is paramount to limiting environmental impact and achieving organization-wide sustainability goals, and financial institutions lag across multiple strategies. Less than half of all organizations are sharing sustainability data internally across business units and departments; and for those that have set net-zero targets – only 38% of the industry – emissions data is used for mandatory reporting only and not used to inform strategic decision-making.

However, the industry is again doing better than others when it comes to the use of artificial intelligence and automation to help achieve sustainability goals, with about 60% doing so today. And 56% of companies are investing in digital technologies such as AR/VR, or collaboration tools, to reduce carbon emissions because of decreased employee travel.

Accelerate toward sustainability

How does the financial services industry lean harder into sustainability? For a start, set and implement a sustainability strategy that is holistic – an enterprise-wide view to affect change and that ensures upfront collaboration from key stakeholders. Importantly, too, sustainability cannot be managed as a compliance project: it requires an overall enterprise transformation, similar to efforts that organizations put into digital transformation programs across all of their businesses and functions.

Accelerating sustainability transformation has to be a team sport with a commitment at the top of the organization. C-level executives have key roles to play and need to act jointly on prioritized objectives to achieve impact and value for the business. The CEO has to make sustainability a business priority: launching a sustainability taskforce and collaboratively building a roadmap are steps that might be considered. The CFO has to articulate the business case for sustainability, including evolving metrics and reporting to do so, and should consider how to leverage sustainable financing and incorporate green investing. And the CIO might consider making environmental impact a criterion for the selection of external IT vendors, in addition to ensuring that internal hardware and software architecture supports the achievement of sustainability goals for the organization.

In addition, action across multiple business dimensions can help to increase momentum:

• Redesign operating models to gain traction quickly. Build the necessary business cases, and take steps to change process and product design. Demonstrate a better understanding of your business impact on the environment, and pivot business models to become more sustainable.
• Conduct regular diagnostic assessments to understand the environmental impact of IT, and ensure that sustainability is a key pillar of tech architecture. Ensure sustainability-related data is reliable and shared broadly and routinely.
• Support the sustainability journey transformation across the entire employee population, including recruiting and training employees with hard sustainability skills. The industry lags most others when it comes to actively hiring new talent skilled in this area.

The time to act is now

With combined action from the board, C-suite executives, and functional departments, companies can accelerate their transformation toward sustainability. Enterprise-level coordination, a redesign of business models, cultural alignment, and technology are all drivers allowing a sustainability agenda to permeate the entire organization (see Figure 4).

Commit to new sustainability strategies for all parts of your business, act deliberately and with speed, and gather reliable data and share back results through robust monitoring and reporting processes. The time is now for the financial services organizations to double down on sustainability – not only to become future ready, but to advocate effectively for the planet and their people.

Methodology

Capgemini Research Institute conducted the Sustainability Transformation Trends Survey during August and September of 2022. Across 11 industries and 12 countries, 2,004 executives at 668 organizations, each with more than $1 billion in annual revenue, participated; three executives from every organization were surveyed. Financial services executives numbered 219 or 11% of the global survey population.

The study’s findings reflect the views of the respondents captured via an online survey questionnaire and are aimed at providing directional guidance. Please contact one of the Capgemini experts listed at the end of this report to discuss specific implications.