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The Future of ESGTech: Succeeding in uncertain times

Sehrish Alikhan

Sehrish Alikhan

Reporter, Finextra

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

Digital transformation has benefited companies and consumers alike in accessibility, speed, customer experience, and countless other ways, but has also made consumers vulnerable to security and privacy risks. In recent years, the amount of cyberattacks and security breaches to individual accounts has skyrocketed.

In the wake of rising financial and economic instability, financial institutions are adapting their security protocols and sustainability strategies to the current geopolitical climate. This includes transforming supply chains and confronting disruptions that were brought about by the Covid-19 pandemic.

Barclays’ Kelly expounds on the impact the last two years have had on the supply chain and the need for banks to match the needs of their situation: “Recent events highlight how rising prices, and an unpredictable economic environment are driving instability. Complicating global supply chains will be continued disruptions to operations and logistics driven by the pandemic, social unrest, cyberattacks and extreme weather events. Businesses must seize the opportunity to re-examine their companies supply chains for resilient supply chain strategies.”

Barclays is providing for current consumer needs by strengthening their data management and IT systems to prevent cyberattacks and prioritising their sustainability agenda. Kelly highlights the need for companies to “create sustainable value for all stakeholders,” by employing the Task Force on Climate-related Financial Disclosures (TCDF) into sustainability regulation and increasing company engagement regarding ESG goals.

“Increasing stakeholder expectations regarding sustainability and broader environmental, social and governance (ESG) issues provide the opportunity for a strategic shift in business models,” says Kelly.

There has been a change in client behavior and expectations regarding the products and services provided by financial institutions considering how the online services open up the possibilities of risk. As the reliance on third party platforms becomes more integrated into digital and mobile banking, banks must strive to gain customer trust and ensure that their data is protected.

A spokesperson from BBVA emphasises how cybercrime has become more sophisticated since the pandemic with criminals hacking into emails, SMS, instant messaging systems, and social media. To ensure that customer privacy is protected, companies must employ AI and automated learning services to create effective cybersecurity strategies.

BBVA plans to implement a ‘Zero Trust’ strategy to monitor third parties and integrate privacy training. The BBVA spokesperson underscores the need to invest in monitoring and detection capabilities to prevent security breaches: “New technologies such as Artificial Intelligence, Quantum Computing, Blockchain, 5G networks or the Internet of Things are increasing the opportunities for new user experiences and businesses. However, these opportunities come with challenges that affect privacy, security and the overall customer trust, which is key to the survival of the digital economy. In this context, and from a cybersecurity point of view, organisations have to consider cybersecurity as one of the main elements to face these challenges and to guarantee operational resilience.”

With the consistent evolution of geopolitical and cybersecurity risks in an increasingly digital world, regulation will adjust accordingly as the financial sector increases its dependency on online services.

MUFG’s Clark touches on how MUFG is pioneering digital transformation to improve customer experience and make their global financial services more flexible and agile.

“Using an agile approach, we bring together cross-functional teams with a common mission to evolve a component of our business model, operations, or deliver a new product,” says Clark. “We implemented a platform that digitises and automates key elements of the onboarding client journey – changing how we interact with our clients. We deploy targeted applications that can enhance the onboarding process for new clients and simplify their interactions with us.” With carefully placed technological investments, Clark explains how MUFG focuses on functionality and processing time to allow employees time for professional development and client relationships.

“Building on the successes from a particular market or product rollout, we then pursue opportunities to leverage these investments and achieve greater scale across our organisation on behalf of our clients and our business.

Financial institutions are innovating business models to confront and overcome challenges opened up by digital transformation. To move towards a safer, more secure financial future banks must upgrade their technological capabilities when it comes to data protection and privacy in order to prevent fraud and mitigate risk.

In current financial developments in ESG technology, financial service providers are working on approaches that utilise online services and technology to adapt to the regulatory, cybersecurity, and geopolitical risks that are emerging in the current post-pandemic era. In this process, the financial industry is witnessing a surge in enhanced online products aimed at protecting consumers and facilitating online banking with minimal risk.

Progress is being made as banks are pioneering technological advancement to keep up with the fast pace of the industry. Looking forward, financial service providers must embrace new technologies and customer protection strategies to maintain an edge in the industry.

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