jueves, 31 de enero de 2013

Increase profitability through Sustainability in Banking?

by Sarah Feron - Senior Consultant at at ConVista Consulting Spain
Sustainability has gained considerable importance for banks since the financial crisis. Once an institution loses the clients trust, it is extremely difficult to regain that client. Environmental, social and governance (ESG) factors are long term opportunities for change, and simultaneously help to improve the financial performance.
It was revealed that, when hearing 1-2 times about a headline of a company that is distrusted, in case of negative information is mostly believed in (57%), whereas only 15% believe the positive information (IMD, 2012):
Customer reaction to information based on trust

The financial sector is not only placed last in a cross industrial comparison, but has even relatively dropped in significantly after financial crisis:

Trust Barometer comparison 2011 to 2012 in selected countries
Given the high competition in the sector, it is crucial for banks to be proactive rather than reactive to retain its clients. Only complying with mandatory regulatory disclosure is not sufficient any more – banks will have to go a step further. 
The motivation for a change is not only driven by an ethical point of view, but also a business one: Several studies have shown that sustainability leads to a better image on the one hand, but on the other hand it has actually a positive impact on the company’s performance: Among others, higher external investments, higher ROI/ROE, less volatile stock prices, improved stakeholder relationships, and greater cross border investments (e.g. M&A), could be observed. In fact, a recent report conducted by GABV (Global Alliance for Banking on Values) revealed that sustainable banks performed 51% better than Globally Systemically Important Financial Institutions (GABV, 2012).
Benefits for Banks

For strategic decisions an additional driver must be taken into account: A substantial number of regulations are currently planned or reviewed by the European Union (involving organizations like EBA, EIOPA,ECB, or FSB), which will make financial reporting disclosure mandatory in the future; however, an anticipated voluntary disclosure can provide a significant competitive advantage. International organizations stressing different approaches already offer reporting tools based on KPIs which guarantee transparency to the client when published accordingly. 

Pendulum between mandatory and optional disclosure

How to proceed
Sustainability distinguishes between three major fields of action: Environmental, Social and Governmental/Compliance (ESG).
Some general considerations
  • Review your product portfolio: What impact would each measure (ESG) have on your stakeholders?
  • Which strategy do you determine for each country, sector or market that you want to enter with the new approach?
  • Define the goals you want to achieve in the short, mid-, and long-run
  • Which official report do you want to generate that best fits your strategy
Management is important:
  • CEO needs to foster policies for customer education and assure easy access to information
  • Train employees to make sure that they are familiar with the new policies and products
  • Track and control the benefits of the taken measures
  • Work hand in hand with regulators to make sure you understand the priorities
  • Integrate the sustainable report in your financial statement
Communication to your customers
  • Policies/Products must be easy to understand (simple recognition, like colors)
  • Count on strategic partners familiar with the material (e.g. NPOs)
  • Clearly separate your sustainable investment products from traditional ones for easy identification
Make your choice: Get active before you are obligated and regain your clients trust now!

ConVista is working with tools to assure sustainable investment:
  • SAP Bank Analyzer
  • SAP Business Warehouse
  • Norkom AML
  • SAP Accounting for Financial Instruments
  • SAP Governance, Risk und Compliance
  • Incentive and Commission Management
  • Human Capital Management
  • Smart Meter
  • Proper Developments of Disclosure Reporting
We can help you pave your way with tailored solutions. We support you prepare and generate standardized and validated reports that best fit your mission.