2023 AND ESG: WHAT COP27 MEANS FOR THE FINANCIAL SERVICES SECTOR AND THE YEAR AHEAD
Alberto Lopez-Valenzuela, senior partner at Penta Group, considers what we can expect for the financial services sector in 2023.
As 2022 draws to a close, the topic of ESG has never been more important. With commentators continuing to mull over the details of COP27, questions remain over whether the two-week conference in Egypt really delivered enough. One aspect that the financial services sector needs to get to grips with quickly however is the growing focus on ESG and what this means for businesses from a reputational point of view.
Scrutiny will continue to rise in 2023, as corporates continue to promote their sustainability credentials by investing increasing amounts of their advertising and marketing budgets. This is thanks in part to social media, where voices calling out corporate bad behaviour can quickly gather momentum. Indeed, there is nowhere to hide if you are making ESG claims about your business that don’t ring true.
Several companies, including household brands and financial institutions have been openly reprimanded by the Advertising Standards Authority in 2022 already, having fallen foul of this increased focus. Their sustainability-based advertising campaigns have not stacked up to public scrutiny and the inevitable cries of greenwashing have ensued.
Claims around sustainability clearly need to stand up to ever more intense questioning. If they don’t, then financial services companies can expect customer backlash and negative media attention on the issue which in return represents a real risk to reputation – reputation that can take years to build and just one mistake to seriously damage.
This point was backed up at COP27 by Antonio Guterres, UN Secretary General, who pledged zero tolerance for greenwashing and made it clear what was expected: “We urgently need every business, investor, city, state and region to walk the talk on their net zero promises. We cannot afford slow movers, fake movers or any form of greenwashing.”
His newly established UN High-Level Expert Group then put forward their recommendations in their first report. Some of the stringent recommendations included corporates and countries not being able to claim to be net zero while continuing to build or invest in new fossil fuel supply or any kind of environmentally destructive activities.
Additionally, they cannot participate or have partners participate in lobbying activities against climate change or just report on one part of their business's assets while hiding the rest. What is clear is that accountability, responsibility, openness, and measurable goals are going to be crucial for corporates going forward, in a world where ESG is becoming increasingly important.
What next for 2023?
It is crucial that corporates assess and understand their current ESG position – getting it wrong can be hugely detrimental to the reputation of a business. Every business needs to have a clear vision for achieving net zero and this needs to be delivered from the top down. In its simplest form this means there needs to be an ESG strategy, implementation plan and ESG reporting and measurement. The final point is critical, because against a backdrop of increased scrutiny, proof points and authenticity matter more than ever.
We have seen companies deliver the above very well and bask in the reputational halo effect it delivers. We have also seen companies get it wrong and not be able to back up their claims. The focus on the UK’s Financial Services sector’s ESG credentials is not going away – as we head into 2023, it should be assumed by all businesses that customer and media apathy on the issue simply does not exist.