European banks struggle to put ESG strategy into practice

06 July 2021 Consultancy.eu 4 min. read

As sustainability climbs higher up the financial agenda, a new Mobiquity study has revealed how banks across Europe are struggling with taking concrete steps for a greener future. 

European digital transformation consultancy Mobiquity surveyed 300 banking executives – at large incumbents and smaller challengers – across the UK, Netherlands and Germany. Pressure to go green in finance is palpably mounting in Europe and around the world, and the researchers sought insight into how the higher-ups at financial institutions are treating this shift. 

Awareness is scarcely an issue: roughly 80% of banking executives are conscious of the sustainability challenges facing banking in the new normal. As pointed out by Mobiquity’s senior director for digital banking Howard Moore, the last year has only served to intensify this consciousness. 

Sustainability strategy and implementation

“Indeed, with greater transparency about sustainability, an increasing societal responsibility among banks and changing customer demands during Covid-19, the importance of scaling sustainability initiatives has been accelerated over the course of the pandemic,” he said. 

And more focus has brought more nuance to the field. “Today, creating a sustainable future includes a range of areas, such as becoming net zero and reducing the carbon footprint, challenging environmental justice and biodiversity issues, and leveraging digital technologies to drive sustainable outcomes,” added Moore. 

The upshot is that sustainability has become a core part of the banking business strategy – most notably for over 90% of executives in the Netherlands, and nearly 80% in the UK. Germany lags far behind in this scenario, with less than half the respondents noting sustainability as a strategy-driver. 

Sustainability focus at board level

The execution gap

Yet, when it comes to bringing this strategy to concrete action, banks across all markets have work to do. Once again, Dutch banks are leading the pack – with nearly 65% taking steps to become more sustainable. This falls short of 60% for the UK, while Germany trails by some distance with a dismal 24%.

So what causes this gap between strategy and implementation? One reason is the lack of focus at board level. In the Netherlands, for instance, while sustainability informs business strategy for over 90% of banks, less than 70% actually practice sustainability reporting in boards. The UK performs well on this metric – with 71% reporting – while Germany recorded 58%. 

Across all three markets, less than two-thirds of banks have a sustainability representative on the board – which might explain the issue’s lack of penetration to the very top. At the same time, banking executives have their own set of diverse factors that prevent more action. 

Challenges and efforts towards sustainability

UK respondents highlighted how Covid-19 and its severe impact on banking revenues has left boards with a lot on their plate. Dutch banks are struggling with the expansiveness of sustainability as an issue – a barrier to forming a cohesive ESG strategy. In Germany, executives admit a lack of knowledge on how best to implement greener practices. 

Amid a fragmented strategy and knowledge landscape, many in the Netherlands and Germany are pairing their sustainability initiatives with ongoing tech investments – positioning digital solutions as means to more sustainable results. Nearly half of UK banks, meanwhile, are investing in carbon credits to boost their sustainability profile.

These efforts are not without merit: Moore explained how “as digital transformation provides greater information flows to the frequency and type of services being used, we are able to not only improve our ESG efforts but provide better information on measuring and monitoring their relative impact.” 

That said, banks will have to build a cohesive strategic foundation that resonates from board through business in order to achieve sustainability outcomes with the urgency that is expected and required.