How sustainable financial products can help drive profitable change

Banks, insurers, and wealth managers are facing sustainable finance commitments head-on while navigating practical implementation challenges. The scale and pace required to simultaneously align with changing customer preferences, create positive ROI for shareholders and meet sustainability-related commitments and targets adds a significant degree of complexity to traditional product strategies.

Siloed product strategy ownership with traditional emphasis on short-term financial performance creates a clear barrier to scaling the integration of sustainable finance products. Even where there is product-owner buy-in, delivery capabilities for these new product categories are comparatively less mature and lacking the underlying risk management processes required to ensure any solutions are customer-centric, revenue-generating, and aligned with internal risk frameworks. With the wide range of emerging sustainable retail, commercial, wealth and insurance product opportunities, innovation will play an important role in creating ‘future-fit’ product and commercial strategies.

Getting your organization ready to integrate sustainable finance into its offerings

The goal is to identify the ‘sweet spot’ between a financial institution’s customer needs, product portfolio, risk appetite, and sustainable finance objectives. Inside of that sweet spot resides high-impact product transformation opportunities that have the potential to enhance an organization’s sustainability performance while generating new business.

To find this sweet spot, senior leaders – including both Chief Sustainability Officers and product P&L owners – are taking a longer-term view of opportunities that are emerging as a result of changing customer preferences.

Transforming your business

To bring sustainable finance products and services to market, sustainability teams will need to collaborate closely with product, channel and risk teams across various lines of business. Organizations may need additional support to establish this collaboration and tap into the right business tools and capabilities to bring sustainable finance products and services effectively and efficiently to life, including:

• Identifying the products and experiences that are relevant to your most important customer segments and that have the potential to generate positive ROI.
• Determining how existing product, channel and risk capabilities can be used or adapted to deliver sustainable products and experiences to the market.
• Measuring revenue generation potential by evaluating how an evolving product portfolio could improve the performance of a financial institution’s business drivers, such as net interest margin (NIM), fee revenues, transaction volumes, assets under management (AUM), premium revenues and customer lifetime value.
• Establishing operating and sustainability and/or impact metrics that support target setting and improve measurement.
• Building buy-in and excitement from teams across your organization around delivering shareholder, environmental and social outcomes impact.

All together, this approach establishes a clear roadmap for financial institutions to follow that enables them to drive implementation at scale and drive positive ROI. and positive ROI at scale.

 

Process

01 Readiness and alignment

An important first step is painting a clear, 360-degree picture of the current state of readiness across your organization. By drilling down into each business unit, we gain an understanding of exactly how prepared your business is to launch and deliver sustainable finance products in the market. For more detailed information on exactly how our maturity assessment works, contact Daniel Resnick, National ESG Strategy, Transformation & Implementation Leader at KPMG in Canada.

Through this process, we also capture advisor and corporate team insights to help define what potential products will be commercially viable, carry a meaningful sustainability impact and best resonate with your most meaningful customer segments. We will also help develop a gap analysis of your current capabilities to see what needs to change to successfully launch a new suite of products.

02 Customer validation

We will then work with your organization to test these products for market fit with your target customer segments and gather additional insights to further enhance product features and design.

03 Product design and business casing

Finally, we will use all the findings gathered in the first two steps to design the final offering, customer experience, delivery model and a related measurement and reporting system. This includes building a business case and roadmap for the product launch, operations and scaling.

The bottom line

Clients, the market and regulators are increasingly expecting financial institutions to evolve their offerings to align with broader industry sustainability goals while maintaining a keen focus on economic performance. Our approach helps organizations plan for a future-state that appropriately prioritizes sustainable finance products and experiences while identifying performance accelerators.

KPMG’s Financial Services and ESG practices combine deep industry experience and technical subject matter to help financial institutions stay ahead of the curve at every stage of the sustainable finance journey.