On 23 July 2019, the European Commission announced a new framework focusing on protection and restoration of the world’s forests. The approach includes promoting sustainable finance in a market where FinTechs are omnipotent in the media and defining disruption; it is worth looking at sustainability not as a trend, but as a development that will play a major role in the financial services industry over the next ten years and beyond.
In April of this year, Bank of America committed $300B to sustainable finance by 2030, focusing on a low-carbon economy.[i] Earlier this July, HSBC was recognized as 2019’s best bank for sustainable finance.[ii] At the same time, the UK government published their Green Finance Strategy study, recognizing the role of the financial sector in delivering global climate and environmental objectives.[iii] Now, the EU is planning to redirect public and private finance to create incentives for sustainable forest management.
These actions clearly show the importance both governments and financial institutions attribute to sustainability in finance. But what about the commercial perspective? According to the Global Impact Investing Network (GIIN), investors allocated over $33B toward impact investments last year, and this is just the beginning. Commonly, financial institutions refer to sustainable products as Environmental Social Governance (ESG). The Financial Times points out that BlackRock expects total invested ESG ETFs alone to surpass $400B over the next decade.[iv] However, the term ESG is often misused, and although bonds and funds are promoted as being ESG, they frequently include unsustainable debt or stocks. This malpractice requires serious players in the market to focus heavily on transparency and communication of their true ESG efforts.
Luckily, this is a huge opportunity for new, progressive products and financial institutions interested in leveraging the current interest in sustainable investing. The world is changing, and consumers are looking for ways to be involved in solving global sustainability challenges. According to MSCI, the millennials who are currently so involved with FinTechs will also be the ones putting between $15T and $20T into ESG investments in the US alone.[v] Setting up specific products to cater to their interests and positioning your brand to earn the trust of this new generation of investors is an absolute necessity.
TransPerfect’s Financial Services team is helping financial institutions develop global brand and communication strategies for sustainable products, as well as supporting them with related regulatory requirements. For more information, visit https://www.transperfect.com/industries/financial.html.