Boston Consulting Group (BCG), one of the “big three” global consultants, is out with an interesting report on how banks can deliver both social outcomes and profitability. While it’s about banks, on reading it has lessons for any faith-based asset owner looking to engage in social outcome investing.
First the authors note that ESG – and particularly the “S” (social) is good for banks, finding in their research…
‘… a link between institutions’ financial performance and their performance on environmental, social, and governance (ESG) metrics; institutions that perform strongly on each pillar also generate higher total shareholder return and lower cost of capital. Among these pillars, the link was strongest for social metrics’.
Yet the authors note that ¼ of the eligible global population has no access to financial services, while nearly ½ have very limited access, presenting both a significant opportunity and a conundrum; why aren’t banks doing more socially?
To help answer this, BCG surveyed 360 senior banking executives in 40 banks across 33 countries and uncovered two major issues that you may identify with, or may experience with your service providers:
Lack of goals and commitments: ‘While climate actions have a clear target in net zero, a major challenge with social topics is related to the lack of defined goals, as well as the difficulty in measuring impact and value’.
Organisation division of climate and social issues: ‘Survey respondents do see the just transition as a critical issue for their institution, but the extent to which social considerations are integrated into their bank’s climate decisions is still limited in many parts of the world’.
Overall, respondents collectively offered actions organisations can take to ensure greater implementation of social outcome activities – with several, highlighted below, if you replace the word ‘bank’ with ‘investors’, are applicable to our investment aspirations as well - verbatim:
‘Pick social topics with your head—not your heart. There are numerous social topics that banks can tackle to create impact, but they cannot do everything. They should zero in on topics for which they can make a business case for action and have a significant impact’.
‘Create a role overseeing the [your organisation’s] social agenda. Nearly every bank now has a climate chief who oversees the entire net zero push across the bank. But in most banks, social efforts tend to be fragmented, with disparate programs…’
‘Break down silos between social and climate efforts. Banks must identify where climate and social goals and efforts may conflict with—or complement— each other. For example, TCFD requires banks’ lending practices to consider climate risk, but banks need to be careful that implementing this requirement doesn’t lead to unintended redlining’.
In the end they recommend what we recommend – and have seen come to life in our Faith-Consistent Investing Interest Group, in our one-on-one work with many of you, and hopefully in our upcoming Faithful Finance training: ‘Don’t go it alone. Banks need to collaborate to maximize their social impact even more so than they do to achieve their climate goals’.