Mark Lancelott on the barriers slowing down the adoption of sustainable finance

Ahead of the Sustainable Innovation Forum 2021,  and following the recent launch of PA Consulting’s research report ‘Financial Services can Change the World’, Climate Action caught up with one of the report’s authors and Head of Sustainable Business Design Mark Lancelott to discuss the barriers slowing down the adoption of sustainable finance.

What were the key findings from the report?

We found consumers truly care about sustainability. We interviewed 3,500 consumers in the UK, Denmark, Netherlands, Norway and Sweden in August and September this year. An overwhelming majority of 93% expect sustainable financial services to become the norm – and almost half expect this to be the case by 2025.

But there’s a serious gap in understanding about the impact of sustainable finance: just 12% of our respondents ranked sustainable finance products as the best way to positively impact sustainability. Other studies have shown that changing where your pension is invested is the most effective way to reduce your carbon footprint – over 20 times more effective than stopping flying, becoming a vegetarian and moving to a renewable energy provider combined.

And people think financial institutions could do more. Only 17% of respondents think they do well at contributing positively to the environment, social causes and conducting themselves responsibly. Sixty-three per cent think financial institutions could build more loyalty by offering more sustainable options, and 60% think they could increase brand value in doing so.

This presents a huge opportunity for the financial services sector – in terms of growth and creating a more sustainable future. It also represents a serious responsibility.

Why do you think sustainable finance options will help address the wider climate crisis?

Sustainable finance options will address the wide climate crisis in two ways. Firstly, by making it easier for consumers to live more sustainable lives. For example, this could be by offering green mortgages and loans to decarbonise homes which require deep retrofit modifications such heat pumps, PV solar generation and battery storage, or providing consumers with information about the footprint of their shopping behaviour, so they are empowered to make sustainable choices. Secondly, where consumers are choosing to put their money in sustainable investments and pensions, fund managers will need to reflect this in the businesses they investment in, increasing scrutiny of ESG performance, and influencing businesses to transition to more sustainable business models through their voting rights.

Financial services providers should engage with the innovative start-ups driving the transition to a low carbon future, help them create new offerings for customers, and nurture them to help them grow and make a bigger impact. Many smaller firms have brilliant ideas but lack the expertise or support to expand their market offers.

So, we see financial services as a huge catalyst for change. The sector can influence sustainability at a macro and a micro level and be central to the drive for a positive human future. By empowering the conscious consumer, financial services can change the world.

What barriers are slowing down the adoption of sustainable finance options within the industry and by customers? How can these be addressed?

According to our survey, consumers care about authenticity, they want to understand more about sustainable finance, and want to embrace sustainable finance products and services. But they lack confidence in the legitimacy of existing sustainable products and services. And they don’t have the information and guidance they need, which has led to some misconceptions.

For many firms, thinking on sustainability is still evolving. Regulations around risk can limit activity in this area, but as the world moves towards sustainability as the norm, firms will need to be ready.

We think sustainability needs to be ‘business as usual’ for finance providers to be taken seriously. And they need to educate and innovate. In other words, give people the information they need – and the opportunity – to make confident, informed financial choices that support sustainability. It means learning more themselves and getting involved with the conversation. Financial services CEOs need to demonstrate vision and commitment to sustainability. It must become a meaningful part of job descriptions: everyone should be responsible for building a sustainability-focused culture.

Do you think Financial services firms are thinking innovatively enough to address the sustainability challenge and influence consumer behaviour? If not, how can PA encourage more ‘out of the box’ thinking?

While the number of sustainable financial products and specialist financial institutions has grown in recent years, there’s still little on offer. There’s a tendency to ‘green’ existing products rather than innovate new offerings. 

Our survey shows there’s an appetite for institutions whose defined purpose relates to sustainability. Fifty-one per cent say they prefer finance products to be easy to access via apps. There are just one or two financial apps marketed as ‘ethical’ and there are fewer than 30 ‘green’ UK mortgages, for example. Environmental Social Governance (ESG) investment funds have been a success story but they’re not an option for most savers. So, there’s plenty of room for imaginative products and services.

Sustainability now needs to be at the centre of customer propositions. When we work with clients to embed sustainability into their value propositions, products and services, we run dedicated innovation sprints starting with customer insights. These aim to inspire new ideas that can be tested and iterated fast. Firms should engage with other players in the ecosystem and identify how to collaboratively innovate and help customers live more sustainably. And existing business customers could have the knowledge, ideas and market to warrant a joint venture.

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PA Consulting are speaking at the Sustainable Innovation Forum 2021, to join them register here now. You can also download the research discussed in our interview here.