Sustainable finance Creating change for good through sustainable finance

With a growing emphasis on the role of private capital in financing the transition towards a circular economy, financial services firms must do more to incorporate sustainability into their operations and products. Especially in a post-COVID-19 world, firms’ cultures are key to creating lasting change.

The adoption of the UN’s 2030 Agenda for Sustainable Development and the signing of the Paris Agreement on Climate Change have boosted sustainable development momentum. And regulatory initiatives such as the EU Action Plan on Sustainable Growth foresee a key role for capital markets in financing the transition to a circular economy. But while regulation is an important driver, considerations extend much further.

As Millennials become the largest cohort of clients, and Generation Z follow hot on their heels, firms have no choice but to meet their demands for sustainable products. Yet, in my view, too few are doing so. The reality is that a failure to make business and products more sustainable risks alienating customers whose perspectives and priorities are changing.

The progress being driven by the EU is something that Swiss firms must get to grips with, as it impacts their ability to do business at home and abroad. Disclosure obligations, suitability, sustainable benchmarks and a sustainability taxonomy are on the short-term horizon.

Compliance with regulation should be the basic minimum that firms aspire to. But to create a more positive impact, we must look beyond legal requirements and rethink products and strategies.

Many businesses are already committed to positively impacting communities and society, of course. But for too many, it is achieved via financial contributions. If COVID-19 will teach us anything, it is how human values must permeate cultures and behaviors far more deeply – and genuinely. The pandemic reminds us how vulnerable our economy is, and how we should all play our part in building resilience.

Sustainability is a catalyst to rethink raison d'être and redefine models. Think companies such as Patagonia or Rhomberg Holding who reinvented themselves through a sustainability lens. Cultural change – including a deep-rooted belief in sustainability – was at the heart of their successful transformations. This can also happen for the financial sector.

A prerequisite is that sustainability is not treated as an add-on. It needs to be a core element of what you stand for and the value you deliver to stakeholders and the broader public.

Value is the key word here. Generating value for employees, value for customers, and value in terms of a positive impact on the environment and society.

I hear so many businesses talk about how they need to digitalize aspects of their operations to realize greater value. But there is often a disconnect between digitalization and sustainability, and a lack of appreciation about what digitalization can deliver beyond efficiencies and cost savings.

I’m not downplaying efficiency. Businesses must be profitable if they are to have any other form of impact – but this is why I find digital finance so exciting. It breaks down longstanding barriers between investors and sustainable finance. And is directly attracting more money into this field through mobile technology, web-based financing applications such as peer-to-peer and investment crowdfunding platforms, as well as blockchain technology and distributed ledger technology.

These are powerful tools that financial services firms cannot afford to ignore.

Such tools are important to your appeal to new generations of customers, who want transparency and convenience. We formed a focus group of younger colleagues at KPMG to get their views on technology and sustainable finance. And I have to say, their views were consistent, persistent, and convincing.

Apps that communicate key data on a single, simple page (albeit with the option to drill down for more detail). Easy comparisons of products and providers. And, above all, credibility. Because ‘sustainable’ solutions that are not credible are risky in today’s social media environment, where views can quickly go viral to enhance or destroy hard-built reputations.

As I sum up, my message is overwhelmingly positive. It’s about opportunities for change, opportunities to attract new generations of customers, and opportunities to generate positive impacts while you do so.

This is not only KPMG’s view. Read the full publication to see interviews with Patrick Odier, Senior Managing Partner of Lombard Odier, Florian Kemmerich, Managing Partner of Bamboo Capital Partners, and PUBLICA’s deputy CEO Dr. Stefan Beiner and Head of Portfolio Management, Patrick Uelfeti. What they say reinforces the message I’ve given throughout this blog. That change is necessary. Change is on its way. And change must be here to stay.

Discover more: Clarity on Sustainable Finance