PIMFA
Why Now Is the Time for Financial Organisations to Focus on Sustainability
It’s no secret that climate change and other ecological issues have become a key focus for countries across the world. Following the signing of the Paris Agreement in 2016, it has been collectively agreed that mobilising stronger and more ambitious climate action is urgently required by governments, businesses, and other influential bodies.
As one of the largest and most powerful industries in the world, financial services will play a vital role in this. The steps we take in the next few years will be crucial in working towards a low-carbon economy. Let’s explore why now is the time to take serious action.
So far, human activity has caused the average temperature of the earth’s surface to rise by 1°C, with the UK seeing an average temperature rise of 0.8°C over the past decade. The main contributor to this is carbon dioxide, with levels increasing by 45% since the industrial revolution.
While this may not sound dangerous out of context, drastic changes can already be seen across the planet, with sea levels rising by 20cm and extreme weather, such as frequent storms and heat waves, being responsible for 370,000 deaths and an estimated $660 (£450) billion worth of economic damage in the past decade.
Last year, COP27, an international summit involving delegates from across the globe, convened to discuss worldwide climate change and the collective next steps that needed to be taken. Hosted in Egypt, the event ran during November and concentrated on several key initiatives. These included:
- Limit global warming to well below 2 c degrees increase and work hard to keep the 1.5 c target alive. During COP26, 190 countries agreed to phase down their coal power, along with ending and reversing deforestation by 2030, increasing the pace of transition to zero-emission vehicles, and cutting methane emissions by 30% by 2035.
- Adapt to protect communities and natural habitats. This involved pledging funds to avert loss and damage for vulnerable countries across the world, including the implementation of disaster-resilient infrastructure and conservation efforts. Currently, there are unfinalised plans to double adaptation finance from 2019 levels by 2025.
- Mobilise finance to fund the global shift to net zero. It is estimated that we will require $5-7 trillion per year to ensure full decarbonisation. However, only $88bn has been raised so far. Plans have been put in place to achieve $100bn by 2023.
- Establish a fund to aid countries facing severe damage from climate change. This was the most significant achievement of COP27, with a dedicated committee being put in place to develop recommendations in time for COP28.
We witnessed mixed reactions to the outcomes of COP26; however, industry leaders are questioning the speed at which the proposed change will be brought about.
So, what can the financial industry do to assist with this? Firstly, banks will play a critical role in cutting emissions through carbon financing, prioritising greener investments and allocating capital to low-carbon and sustainable technologies. With leading banks estimated to have funnelled $742 bn into fossil fuels in 2021 alone, industry cooperation and transparency will be the key to ensuring this is tackled going forward.
Secondly, the creation of green finance standards must be completed to guide this greener way of investing. At present, there is no clear definition of what makes an investment ethical or sustainable, heightening the risk of greenwashing and leaving fund managers to rely on their own interpretations.
Finally, financial organisations, whether they are enterprises or small firms, must look to remove ecologically impactful practices and implement strong ESG goals within their own businesses. According to research, 70% of processes within financial services remain paper-based, and a cohesive industry effort will be needed to ensure significant results are felt. The recommended way to do this is by keeping up momentum for digital transformation.
Boosted by the pandemic, the industry has begun to shift online, and with it, we are seeing a decrease in environmentally harmful processes, such as print, pack, and post. The introduction of technology solutions, such as email solutions for secure document delivery, not only eliminates paper and contributes to wider sustainability efforts but can also cut a company’s operating expenses by 25%.
Entering 2023, each business, if they haven’t already, should be considering how to align their internal efforts to align with industry transformation and worldwide ecological change. While we are not yet out of time to enact change, we are fast running out, and how financial services conduct themselves within the next few years will be imperative to the future of our planet.
Paul Holland, CEO and Founder of Beyond Encryption,
