Today's financial services firms are facing both internal and external pressures — but not from the market.
Pressure is coming from stakeholders who want financial services companies to take a leading role in steering sustainable development. Regulators are imposing new and cumbersome compliance and reporting requirements. Employees want their organization to deliver on an authentic, sustainable purpose. And customers, investors and other stakeholders want to see financial firms achieve sustainable benchmarks.
Before any of this can happen, financial services firms must look inward and create an authentic approach to sustainable finance.
To better understand the financial service industry’s current approach to sustainability, Korn Ferry surveyed and spoke with the leaders of 24 institutions in the insurance, reinsurance and banking industries. All of these organizations oversee at least $25 billion in assets and together have more than a million employees. We studied their current state of sustainability and found that many organizations are struggling with how to create tangible business priorities from the daily pressures they often face.
Why organizations need to take a proactive approach to sustainable finance
For many financial services firms, the pressure to adopt sustainable practices has come from outside forces. That means responses have largely been reactive and less strategic. But now organizations are starting to realize the need to operationalize sustainability.
Instead of responding to external needs, organizations need to rethink their approach and begin embedding sustainability in all of their practices. They must take a strategic approach to balance the demands of external forces, including regulators, shareholders and clients, and internal forces, including their employees and boards.
When they do, they’ll see a variety of benefits, such as the strengthening of their employee value proposition. Employees increasingly want to contribute to a more sustainable world in every part of their lives. By taking a responsible, authentic approach to sustainability, companies become an employer of choice and improve their ability to both recruit and retain employees.
The Korn Ferry sustainability maturity model
We used what we learned from leading sustainable financial firms to frame a four-stage sustainability maturity model based on progress made within the company: basic, progressing, advanced and leading edge. We combined this model with our corporate structure framework, which addresses five core dimensions: strategy, culture, mindset, business and operating model. Together, this helps us understand where firms are on the maturity scale.
Here is a summary of the four stages:
Stage 1: Basic
- Regulatory enforcement
- Adherence to social, health and environmental standards
Stage 2: Progressing
- Operational eco-efficiencies
- Resource conservation, reduced carbon footprint and waste management
- Maximizing reputation and shareholder value
- Continuous learning
Stage 3: Advanced
- Sustainability embedded in company values and practices
- Cleaner and eco-effective products (competitive edge)
- Sustainable economy
Stage 4: Leading edge
- Industry disruption and transformation
- Alliances and partnerships
- Ecological redesign and biomimicry (societal impact)
- Business focus on people, planet and profit (triple bottom line)
Our study found that the maturity of financial services organizations varies based on geography and industry. In general, European organizations are ahead of their American counterparts. Commercial reinsurers, whose clients have a closer link to sustainability, are ahead of other insurance companies.
The banking and finance industries have traditionally had a more tenuous, indirect connection to sustainability. These organizations are further behind their peers than other industries that have already had to address energy consumption, sustainable production and child labor, among other things.
The 3 sustainable finance challenges facing financial services firms
Our findings revealed that financial services firms typically face struggles that fall into three buckets as they begin to operationalize their sustainable finance strategy.
1 Finding the right focus
Early-stage companies tend to lack focus and fail to translate sustainability objectives into tangible goals. Companies advancing in the maturity model typically link their sustainable finance and corporate strategies, but they may be focusing on too many initiatives at once. Leading-edge companies, meanwhile, often lack focus because they’ve prioritized sustainability so much that it permeates every other effort.
2 Developing a proactive approach
Organizations frequently build a matrix of activities to address the different pressures they face around sustainable practices. But these approaches are often broad and disjointed, and they don’t always tie in to a corporate strategy. Organizations need to reverse-engineer a strategy to ensure their approach to sustainable finance aligns with their corporate strategy and purpose.
3 Securing executive buy-in and support
No matter where your sustainability team is located within your organization, you need to make sure you have support from your firm’s executive committee. It’s essential for senior management to help formalize sustainability within their practice. You also need to develop informal networks of people to help promote your work.
How to shape your sustainable finance model using the 5 key dimensions of sustainability
Organizations that want to build successful sustainable finance models must embed sustainability in their organization’s DNA. To adopt a more holistic sustainable finance strategy, organizations should address the five key dimensions of sustainability.
1 Purpose and strategy
Ensure your stance toward sustainable finance is proactive. It begins with articulating a concrete purpose. The purpose should also go beyond the need to respond reactively to regulators and other external pressures.
2 Culture and mindset
Make sure that the message from the top supports your mindset, purpose and vision for sustainability. Companies must positively and proactively translate what they hear from stakeholders into sustainability strategies and business priorities. You should also create room for projects that foster support for sustainability throughout the organization.
3 Business and operating model
Your approach to sustainability should be comprehensive. It’s important to embed ESG standards into all of your products, services and markets.
The structure of your sustainability team matters less than the external drivers supporting you. As long as the team can drive initiatives forward and has the support of the executive committee, you’ll be able to make progress. Be sure to harness the promoters of sustainability within the organization and start institutionalizing your informal networks.
5 Leadership and talent
Ensure alignment between your leadership team, communications team and stakeholders. Executive committees, particularly the CEO, should take the lead. Everyone should be held accountable with performance management goals and rewards.
Because talent with sustainability expertise is scarce, emphasize the need for skills and training. Develop a plan to identify and recruit people with the right sustainability mindset, industry knowledge and experience.
Reaching your sustainable finance goals
As you progress through these five steps, your goals should be your north star. Remember that it’s important to set measurable and reasonable goals. By ensuring that your goals are realistic and achievable, you’ll gain momentum and start building a more robust, authentic sustainability framework.
To learn more about our sustainable finance maturity model and the findings of our research, download our article, The challenge and opportunity for accelerating sustainability in financial services or access more information here: ESG & Sustainability.