How ESG Can Keep the Financial Industry Moving Forward

The financial industry is no stranger to acronyms, but the three letters currently impacting the industry are ESG, or environmental, social and governance. ESG isn’t a financial metric or benchmark. It’s a way for businesses to address their impact on society and role in influencing positive change. 

ESG’s role in fintech 

Social unrest, war and climate change are a few of the issues dominating today’s headlines. Corporate leaders notice and realize there’s more to running a business than profits. They see how they affect society – and fintech leaders are no different. 

ESG focuses fintech companies on the areas they can make real change. Organizations can knock down barriers for everyone to participate in a diverse and inclusive economy. They can reduce their carbon footprint to protect the planet. They can work together to drive governance for responsible and sustainable growth. 

Having an ESG-forward fintech company affects all areas of the business. Employees engage more in community-driven initiatives that impact where they live. Leaders and decision-makers prioritize investments in other companies that share their values. It makes ESG an industry-wide effort. 

While companies are committed to all three pillars of ESG, the environmental aspect is getting most of their focus. 

Fintech’s focus on the environment 

Environmental issues are getting a lot of attention. Media coverage is growing, citizens are demanding action and corporations are being held accountable for their impact on climate change. This has led fintech companies to look inward and improve their impact on the environment. 

Unfortunately, fintech uses a lot of energy across data centers and office buildings; it’s just hard to see without smokestacks or industrial waste other businesses produce. Switching to renewable energy, downsizing office space and offsetting emissions are some of the ways the industry is reducing its carbon footprint. They’re the first steps of many in a long journey toward a cleaner future. 

One example is how FIS have set their own climate change goals. FIS hopes to achieve 100% carbon neutrality for Scope 1 and 2 GHG emissions and source 100% renewable energy by 2025. From 2020 to 2021, they had a 21% reduction in Scope 1 and 2 emissions, a 17% reduction in Scope 3 emissions and a 22% reduction in energy use across the company (2021 FIS Global Sustainability Report). 

Stakeholder response to ESG initiatives 

Stakeholders have a lot of influence over a business’ operations and performance. Internally, employees and leadership can drive ESG-focused strategies and develop products and services that impact society more. Externally, consumers and investors play a larger role with their wallets. 

Changing demographics put ESG at the forefront. Younger generations care about environmental and social causes more than older generations. They prefer to invest and do business with companies that share their values. 86% of millennials are interested in ESG investing and are twice as likely to invest if social responsibility is part of the value creation (CFA Institute). 

Investors look to prioritize investments in ESG-forward businesses. 74% of portfolio managers say they consider ESG in their investment process – and performance is proving them right. According to the S&P, 19 of the 26 ESG ETFs and mutual funds outperformed the S&P 500 between 5 March 2020 and 5 March 2021. Expect more money to flow toward ESG-forward businesses if the investments continue to pay off. 

ESG keeps the fintech industry moving forward 

ESG covers a lot of ground, which means more people can get involved. It’s about stakeholder engagement. Customers or investors can easily find an ESG-forward company to support. This allows fintech companies and financial institutions to collaborate with stakeholders and introduce innovations focusing more on society and community than profit. ESG is here, it’s growing and it’s not going away. 

Author: FIS Environmental, Social & Governance experts


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