They’re not window-dressing efforts like calls for employees to turn down the AC or participate in community trash pickups either. To the contrary – they’re fundamental commitments to do the right thing in line with core business strategies and profit at the same time.
Financial service providers are no exception. In fact, many finance green initiatives, all of which are needed fast. The effects of climate change could shave as much as 14% off global economic output by 2050 compared with growth levels without climate change. That’s the dollar equivalent to $23 trillion.
Banks, fintechs and lenders are in an extraordinary position to help steer the planet away from such catastrophe by financing green business, especially as investors dedicate more resources to so-called Environmental, Social and Governance (ESG) funds, which have become big business. Collective assets under management (AUM) in ESG funds surpassed $35 trillion in 2020 up from $30.6 trillion in 2018. And this growth seems to be in the springtime of its life. Bloomberg predicts that ESG assets may hit $53 trillion by 2025, surpassing more than a third of the world’s total AUM.
In Latin America, meanwhile, AUM in ESG funds came to $43 billion in 2020, which is less than 1% of the region’s total. There is room for growth, as Latin America has proven in the past that there are fortunes to be made when people are ready to leapfrog from outdated technologies to newer ones. Latin America saw millions go from unbanked to banked overnight with the arrival of fintechs.
Financial entities will play a role in this green transformation, and green banking is something everybody wants, because people themselves are more environmentally aware than ever. Our Mambu sustainability report found that 85% of consumers have shifted their purchase behaviour to become more sustainable in the past five years.Furthermore, 67% of respondents said they want their financial institution to be more sustainable.
And those who are running more sustainable businesses need to tell their story better – only 42% of global consumers think that their current bank or financial institution clearly communicates its sustainability commitments. Add to that, only 37% say they know what climate pledges to which their current financial institution has publicly committed.
This trend is increasingly more pronounced in Latin America.
- 48% of consumers in Latin America would like banks to make customers aware of their sustainability commitments during the application process for all products and services
- 39% of consumers in Latin America would like banks to promote their sustainability commitments more prominently on their website or app
- 47% of consumers in Latin America say they would like banks to add or create incentives or loyalty programmes for customers that reward them for making financial decisions that support the sustainability transition.
- 69% of Latin American consumers say they would like to have a say on how and where financial institutions invest their money, so that these investments align with their personal values.
- 72% of consumers in Latin America would like to be a customer of a bank or financial institution that has a sustainability agenda
- 58% of Latin American consumers would like to actively use green financial services in the future
- 66% would like to have a say on the types of sustainable finance products and services that their financial institution develops in the future
The amount of money to be invested at the sovereign, public, non-profit and private-sector levels across the globe is mind boggling – in the trillions for sure. Complying with the Paris Agreement will call for the use of new energy sources, better conservation of resources and controlling emissions – major mitigation work that will require green financing worldwide.
On the flip side, adaptation efforts like adjusting communities for rising sea levels and installing carbon sinks like mangrove forests must also prepare the world for a changing climate, which will also require green capital spending. Our survival requires a massive recalibration of how we run our lives, and financial institutions will play a fundamental role in making this transformation possible – it’s inevitable.