Consumers Drive ESG to Become a Bigger Focus for Retail Banks – Tearsheet

Sustainability reporting, environmental practices, and ESG investing are now on the radar of consumers in their financial lives. Driven primarily by younger generations, this relatively new criterion is slowly but surely becoming a differentiating factor when choosing a bank.

Consumers still choose their banking providers primarily based on characteristics that directly affect them, such as prices, fees, personal data protection, and customer service.

Although that is the traditional comfort zone for banks to compete with each other, there could be a new scenario on the horizon. Sustainability-related issues may be one of the most viable growth areas for brands hoping to differentiate themselves in a highly commoditized industry, according to a report from Morning Consult.

Although they rank lower on the list, consumers are showing interest in ESG-related factors. Just over 7 in 10 American adults say they consider a provider’s impact on the local community, with a majority saying the sustainable products and services a provider offers are a key factor in deciding whether to start a new banking relationship.

But in addition to reducing paper waste by requesting electronic statements, most consumers still need to take sustainable actions in financial services. A minority of consumers (around 30%) do things like use rewards for something sustainable, ESG investments, or apply for green loans to make their homes more energy efficient.

Only one in five consumers said they researched the ESG ratings of the financial services companies they use, but this metric rises to nearly a third of Millennials.

In general, ESG remains a confusing topic, both for investors and consumers. There is uncertainty about how ESG principles are applied to their portfolios or how much money is allocated to ESG funds. Only 14% of investors said an investment manager talked to them about ESG investing.

But this won’t stop them from playing along and even increasing their share of ESG investments next year. There are more consumers who want to participate in this market than consumers who don’t.

“This is encouraging news for financial services advisers, but they still have work to do. They will need to ensure their clients are aware of their current ESG allocations, and they will need to spend even more time with those who are undecided (34%) about investing in ESG next year,” Morning Consult said in the report.

This knowledge gap can be an opportunity for financial service providers to educate consumers on sustainability and ESG: those who act on these issues are expected and appreciated by consumers.

Value alignment with one’s banking provider is growing in importance, and securing that aspect of the customer relationship could be a winning factor going forward.

One in five Americans (20%) said they left their bank because of its corporate social governance policies, and 16% said the same about their credit card issuer, according to JD Power.

“While ESG initiatives may not be the driving factor for most, there has clearly been a shift in how banking customers view their financial institutions. Americans no longer want their banks to play a passive role in their finances, nor do they want to be tied to corporations that are cut off from their communities. And that creates a huge opportunity,” the study found.

just look at the charts

As the economy moves toward mandatory climate disclosures, it’s helpful to take a look at where we are today.

It turns out that in the US, the quality of disclosures remains relatively low, according to an EY report, which is understandable given that companies are doing CDP reporting for the first time.

And looking across sectors, we can see that those with the most significant exposure to transition risk (energy, agriculture, mining, real estate) score higher than the rest.

Banking and finance are at the bottom of the list in terms of reporting quality and coverage. EY found it “surprising that banks have apparently not performed as well as other sectors this year”. The numbers could reflect a change in sample size, but also initiatives to re-evaluate climate reporting frameworks.

what we are writing

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An introduction to environmental sustainability in banking

Sustainability is a business conversation: climate change will surely create a shift in resources, bringing with it a reallocation of capital away from the status quo.

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ESG is drawing political battle lines between Democrats and Republicans. These three letters were an unknown acronym to the general public not too long ago, but now they are at the center of a new political divide.

what we are reading

The 6 largest US banks to join the Fed’s first climate scenario exercise

Texas ESG attack wipes out some funds that aren’t really ESG

BlackRock faces more ESG fallout as Louisiana lands $794M

Auditors fall for climate risk when corporate polluters fail basic tests, study shows

Wall Street bankers said they can set their own CO2 terms after dispute

World’s largest reinsurer Munich Re will no longer insure new fossil fuel projects

BlackRock, Citi CEOs won’t return to key climate talks

The World Bank ‘has donated nearly $15 billion to fossil fuel projects since the Paris agreement’

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