Long reads

The Future of ESGTech: Unprecedented challenges, uncertain times

Paige McNamee

Paige McNamee

Senior Reporter, Finextra

This is an excerpt from Finextra’s report, 'The Future of ESGTech 2023'.  

Significant progress has been made over the last 12 months with regard to the implementation of tangible regulatory and governmental action towards sustainability - the EU taxonomy for sustainable activities is a leading example. 2021 also saw a sharp rise in corporates committing to net-zero pledges, but ESG progress across financial services remains definitively in its early days.

Financial institutions are paying close attention to action which must be taken to meet sustainability requirements and prepare for a future where ESG challenges are met head on. In the wake of the global Covid-19 pandemic, 2022 marks the beginning of a new era of sustainability-focused financial services, with less attention on grandstanding and posturing, the industry is ready to call out greenwashing, and take action which prioritises rapid, tangible results.

Achieving these results will require a certain element of risk, as financial services pushes toward a new landscape where sustainability is not just desired but mandated. However, while new risks emerge, so do new opportunities for financial services providers to lead the way in technological innovation and driving positive global change.

Helen Kelly, head of corporate banking, Barclays Europe, explains that every industry is going through a shift in digital transformation, none more so than financial services. As the wider financial services industry becomes more interconnected and digital, new technologies offer significant opportunities, and financial service providers continue to face new challenges.

Kelly adds that Barclays Europe continues to invest significantly in digital as the bank views it as a cornerstone of its continued growth journey in Europe in the short term.

“New technologies and a focus on innovation requires financial services providers to be increasingly automated, data-led, open, and agile. This is more than just staying competitive with our peers, technology also gives us ways of establishing solutions for Barclays Europe clients as they too travel on their digitalisation journey.”

Barclays Europe has approached this new reality through continued investing in its technological infrastructure in recent years, as clients demand services that are secure but also easy to access. Kelly observes that an example of this is the Barclays. net platform which enables corporate customers to view and manage their accounts and make payments. The interactive system offers the capability to view and control Barclays Europe accounts across different jurisdictions on a single platform.

Innovation and digitisation offer extraordinary advantages for society as a whole, states a spokesperson for BBVA, but everyone must do their part to ensure that no one is left behind in the process. This is what drove BBVA to commit to transformation and digitisation over the last decade. These enormous efforts provided BBVA with capabilities that have positioned the bank as one of the digital leaders in the global financial industry, and a global benchmark for responding and reacting to the challenges prompted by the Covid-19 pandemic.

The low-carbon economy and negative emission technologies will give rise to a new economy and generation of ESG tech start-ups that are critical to the future, predicts Natalie Blyth, global head of commercial banking sustainability at HSBC. “In addition to traditional banking activity, we believe we can add significant value and help accelerate these firms to becoming the unicorns of tomorrow through partnerships, referrals, and early-stage financing including venture debt and venture equity propositions.”

Importantly, successful businesses will be those that can adapt to new priorities and shifting geopolitical landscapes, and at the same time, paving the way for the future of banking. “It is fair to say that the volatile environment over the past 24 months has tested businesses to deliver on their current and future objectives,” argues Kelly.

From the Barclays Europe experience, successful businesses are those which will have robust scenario planning and risk management strategies in place to take advantage of opportunities. There remains a requirement for panEuropean banks such as Barclays Europe to act as a counterparty between West and East for commerce and trade.

Kelly adds: “Going forward we will continue to assist clients on their global needs and helping them achieve their long-term goals. The shifting geopolitical environment offers opportunities as companies still need to be international, but companies will also need to embrace these opportunities to avoid falling behind.”

Emphasising the extent to which we should expect environmental considerations to impact our economy, Blyth states: “We’re standing on the edge of a sustainability industrial revolution that will go deeper and faster than any before it. Business models will be remodelled, ways of working reimagined and supply chains reconfigured as all aspects of sustainability, from inclusive finance and labour rights, through to the net zero transition, are addressed. A new economy will emerge, as the businesses of today adapt successfully or face exclusion and the start-ups of tomorrow rise rapidly.”

Blyth continues that the sustainability risk agenda is evolving, and banks are building sustainability risk capabilities to assess own and client transition risk, prevent greenwashing, and managing reputational risk. This will better support the new economy needs, optimise capital allocation and influence positive change.

This year, innovation and digitisation remain at the heart of BBVA’s overall strategy in three key ways:

1. As a key lever to becoming a distinctive bank for our clients thanks to our unique value proposition to improve the financial health of our customers and clients, and to help them make a transition to a more sustainable economy;

2. As the main driver to accelerate profitable growth, incorporating the latest technologies as a differentiating element when it comes to developing and putting new solutions into the hands of our clients, entering new markets using our digital capabilities and supporting innovation across all sectors (to be the bank of the companies that are defining the future and redoubling our investments in disruptive models); and,

3. As a result of this commitment to innovation and digitisation, 44 million of the Group's customers interact with the bank through digital channels today; more than 66% do so on the mobile app; and 70% of sales take place digitally.

Echoing Blyth’s comments, Ranjana Clark, head of global transaction banking at MUFG states: “Times of great change bring opportunity. For companies of all sizes, it is a chance to innovate, adapt, and pursue new markets. It starts with putting clients and innovation at the centre of everything that you do.”

To navigate a rapidly changing business climate, it is essential to listen to clients’ needs and stay abreast of industry and sector trends, while harnessing the power of technology and talent in order to keep innovating, furthers Clark. MUFG takes a holistic approach to decision-making, by considering the geopolitical environment, regional market trends, and competitive landscape. Data and analysis support both near-term and long-term priorities, including product investments. When it comes to technology, it is all about digitalisation and integration for the bank, and Clark notes that the velocity of uptake of these trends surged with the pandemic and increased globalisation.

Within the transaction banking arena, CFOs and treasury professionals are seeking digital working capital solutions that streamline payments, accelerate cash flow, and increase efficiencies. Global commercialisation and trade are fuelling this business need, which in turn are driving cross-border payments.

We are seeing the move to real-time payments (RTP) is converging with the need to meet the demand for global payments, and digital payment choices are just one area shaping the future of banking. Also front-and-centre are electronic tools that provide treasury decision-makers with a comprehensive view into their working capital across the organisation, subsidiaries, and regions. Clark concludes that MUFG clients are pursuing ways to integrate payables and receivables to give their treasury teams greater insights into their vendor spend.

Times of great change certainly do bring great opportunity. While it is reassuring to observe leading banks begin taking real action toward a more sustainable future, they must remain open to change and agile enough to turn their ambitions into reality.

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