Näktergal blog

How automation drives ESG sustainability in finance

23rd June 2022 - 4 min read

This year has brought a new focus and further pressure on sustainability in the finance industry, together with a refreshed hope that we can change our society for the better. Banks, in particular, are emerging as a significant force in reaching the UN’s Sustainable Development Goals, and all eyes turn to leaders to react and perform. The recent COP26 climate conference highlighted environmental, social, and governance issues (ESG) with a new urgency.

Additionally, the pandemic has shifted how we value our time and money. Covid-19 was an opportunity for banks to scale responsibly through innovative means. The pandemic has accelerated the need to be digital and afforded us all a new way of thinking about current business models and what it means to be sustainable.

How automation drives change for good for ESG sustainability in finance

How can a company’s need to be digital benefit long-term sustainability goals? Digital finance typically refers to integrating big data, AI/ML, mobile platforms, blockchain, and automation. It can be both a driver and a solution for change in all three areas of ESG. Let’s take a look at how automation can benefit each area:

How automation drives sustainability in finance E = Environmental

Environmental concerns how a company performs as a steward of nature, with a focus on conserving the natural world. Includes addressing issues such as:

Climate change and carbon emissions
Air and water pollution
Biodiversity
Deforestation
Energy efficiency
Waste management
Water scarcity

‘Going Green’ is not new, but the increased focus on responsible business is driving a new wave of innovation regarding the environment. This is much needed – the world is currently not on track to limit global warming to 1.5 degrees, the amount required to reduce challenging impacts on ecosystems, human health, and well-being.

The good news is that some of the largest global financial services institutions, such as HSBC and Santander, have pledged net zero emissions by 2050. They will measure emissions not only from their operations and supply chains but, even more important, from their financed emissions which can be up to 1,000 times greater than their own emissions. This is good timing as society is changing investing habits; around a third of millennials often or exclusively use investments that consider ESG factors in a poll of US adults.

So how can automation help banks meet these environmental goals? Automation and digitization of products bring many benefits for banks and lenders looking to reduce their environmental impact. Some ways are apparent – digitization means less paperwork and a reduced carbon footprint. It also means fewer in-person meetings, less traffic, and so less air pollution, etc.

But there are deeper layers too. Cutting costs and more efficient systems can reduce our overall consumption of resources thanks to intelligent products afforded by automation. New applications of existing technology or even entirely new business models are emerging to increase energy efficiency, reduce overall energy consumption or expand the use of renewable energies. Automation plays a massive role in helping banks meet environmental goals.

How automation drives sustainability in finance S = Social

Social criteria examine how a business manages relationships with employees, suppliers, customers, and the communities where it operates. Includes issues such as:

Customer satisfaction
Data protection and privacy
Gender and diversity
Employee engagement
Community relations
Human rights
Labor standards

The widespread use of mobile and e-banking applications opens new opportunities for financial institutions to provide transparency around lending processes. At the same time, automation allows businesses to evaluate transactions in real-time. Together these bring more customer awareness and are vital for selecting products and services that align with an individual’s values and needs.

Automation also helps a long way in fairness to customers because it can provide an unbiased review of each situation without factoring in gender, ethnicity, or other biases, whether intentional or not. We can use automation to gain access to high-quality data to increase awareness of how a business provides services to society, ensuring that the right decisions are made at all levels.

How automation drives sustainability in finance G = Governance

Governance deals with a company’s leadership, including internal controls and audits. Issues include:

Board composition
Bribery and corruption
Executive compensation
Political contributions
Whistleblower schemes

Similar to the above point on social criteria, automation of transparency brings a lot to the table regarding governance. A fairer process can remove biases when it comes to protecting consumers and better internal oversight. The transparency built into digital tools can fight against hidden agendas and unfair policies within companies, which benefits employees, management, the company, and the planet in the long run.

Consistency of reporting and process facilitated by automation also helps ensure methods are fair and transparent. This can be made uncomplicated through tools such as data vaults.

Companies focusing on such factors can expect to become increasingly attractive to investors. In Switzerland, 42% of millennials started or deepened a business relationship because of a company’s positive impact on society or the environment.

Automation in the fight for sustainability

A toolbox of digital solutions is crucial in shifting to being more environmentally and socially sustainable with effective governance. Digital technologies are used to provide the best products for our customers and attract the brightest employees, all while meeting sustainability goals.

The bank of the future will be digitally focused, with clear and long-term care about the planet, the society, and the people with which it operates. The banks that successfully utilize sustainable digitization will be the ones that retain customers, enhance their talent base and optimize business performance. If automation can help finance leaders reach these goals, it is worth implementing now before it is too late.

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TL;DR

Automation in banking is useful beyond just increasing efficiency and improving experiences. There are significant benefits in terms of ESG too. Moreover, consumers and investors are increasingly applying these non-financial factors.