Building back green and fair

Growing needs for banks to restore the contract with society and public purpose

Retail Banks are now serving a customer financially impacted with different levels of financial resilience, ranging from no resilience, low, medium and high reliance. These customers are also required to be digital and live differently for some time where home and work merge, with some sort of hybrid model being the most likely emerging model. Each set of these changes brings associated needs and requirement for support.

In the UK, the FCA financial lives survey finds that the pandemic has left over a quarter of UK adults with low financial resilience. Over one in 3 adults (15.9m) expect household incomes to falls while one quarter25% (13.2m) expect to struggle to make ends meet. Increasing low levels of financial resilience is the story world over and for the first time in three3 decades, global poverty is on the rise with up to half a billion people falling into poverty. Most of those will be living in sub-Saharan Africa and Asia. With SME’s hanging by the skin of their teeth, many will collapse unless more support is offered to them.

Building back financial resilience is key, and this involves restoring the public purpose. On current trends banks may be forced to mover sooner and take action against a backdrop of a two2-stage problem – dealing with credits losses and defaults whilst restoring their contract with society.

Restoring financial health

Banks can benefit from the first mover advantage by addressing the needs of the mass market. Open finance for instance is the next step in the journey of Open Banking which originated as a package of measures to increase competition in retail banking and allow customers to benefit from technological advances. While Open banking is concerned more with bank accounts and payment services, open finance offers consumers and businesses a holistic view of their finances. Open finance goes beyond bank accounts and includes the wider financial data such as mortgages, savings, pensions, insurance and credit – the entire footprint can be entrusted by the customer to a third party.

The concept of financial planning is not new, but up until now was reserved for customers with a certain level of liquid assets. Technological advances now enable democratisation and for this to be offered across all generations and financial circumstances (although it remains to be seen how many businesses offering to ‘democratise finance’ are actually doing so). As a trusted holder of aggregated account information, banks can leverage data analytics to identify insights and apply to:

• Develop personal financial management dashboards. These dashboards show spending, saving, investment goals all in one place and can be leveraged to prompt more active management to help save money and costs. Customers can get better priced quotes and easily shift for example insurance and utility providers. The dashboard can show how spending patterns impact money going out and how change in behaviours can reduce spending.
• New advice and financial support service. Consumers are no longer leading linear cycles where they seek product advice linked to life stages or business growth. They need access to hybrid and flexible solutions to help with changing short term and long-term needs, build back resilience across fluctuating earning levels.
• Develop ecosystems to support SME growth: this can include an integrated ecosystem of buyers and sellers relevant to the industry and growth stage. SMEs have the potential to increase connectivity, get better priced quote, select trade partners and service providers. In turn the platform offers banks the potential to customise end to end supply chain finance solutions and better manage risks.

In time, open finance has the potential to galvanise intergenerational planning and solutions for the masses. The pandemic will exacerbate the situation of younger generations struggling to find well-paid jobs and affordable housing.

Intergenerational giving (better known as bank of mum and dad) has had a great influence on property prospects for the young. There is an increasing need for a range of solutions that go beyond family mortgages and are linked to the families and community’s financial footprint. Some solutions include the opportunity to aggregate the power of the collective to get better saving rates, cheaper finance, developed shared asset ownership solutions and reward programmes linked to a collective footprint. Ultimately, perhaps what is needed is a range of solutions that allow the ordinary citizen to invest in improving financial resilience of the communities in which they live.

Rebuilding back inclusive – gender lens investing

With the pandemic expected to push another 47 million (source UN) women and girls into extreme poverty, building back better means rebuilding a world that is gender responsive and inclusive. This means ensuring women are fully integrated into the global response, have equal access to markets and opportunity and benefit from new technologies and finance.

Women’s empowerment principles need to go beyond women in the workforce to include women as suppliers, in the community and in the family. At a macro level, governments need to consider gender responsive budgets and gender inclusive policies.

Commercial banks can join forces with development finance banks, philanthropic foundations and the public sector to deliver a range of gender lens investing solutions to include private debt, gender bonds, ETFs, Venture capital, Private Equity and Index funds. Gender lens investing solutions deliver both financial returns and advance gender equality and send a strong signal to the market. These solutions invest in (a) businesses that are women-owned (b) companies that support gender equality in the workplace, and (c) are companies that develop product and service that impact women’s lives.

In addition to the impact of the pandemic, climate induced disasters exacerbate women’s burden, unpaid domestic and care work. But women are also great agents of change and invest in climate smart Agri solutions and clean-living solutions. Mainstreaming gender equality in sustainability and environmental development is key and can no longer be regarded as a separate issue.

Rebuilding back green, sustainably and inclusively

To finance green solutions large sums of finance are needed. The Global commission on Economy and the Climate estimates that $93trn of global infrastructure investment is needed between 2015 and 2030. Between 2010 and 2019, more than EUR2.28trn went into building new renewable capacity globally, primarily solar and wind energy.
In recent years we have seen a global surge in green bank activity, with 27 operational banks in 12 countries and a further 25 exploring possibilities of establishing themselves (source for figures: Rocky Mountain Institute). Green banks invest in a range of areas to include energy efficiency, clean transportation, coal plans retirement, waste management, bioenergy, adaptation and resilience, Agriculture and use. They have an important role to play and political will and financing is required for more of these institutions to be established.

Whilst green finance has been a focus of regulators, policy makers and institutions at the retail level, societal trends will continue to play an increasing role. The environment and sustainability and the link to health has become of increasing importance to consumers. They seek to work in and do business with organisations whose value and beliefs are associated with green and inclusiveness.

Whole of society mobilisation is key and solutions to help consumers support transition to a low carbon world, address climate risk, and build back inclusively include:

• Microloans to individuals and also specific to women in developing markets. These can be deployed to finance solar installation, sustainable farming solutions, clean water tanks, clean living solutions, accessible healthcare
• SME finance solutions targeting start-up and fuelling innovation in the clean-tech sector, ensuring that both men and women are equally developed
• Retail financing solutions for the home, loans, savings and lifestyle
• Supplier support programmes to help them transition to a green and sustainable business
• Education to raise awareness of the issues and steps that consumers can take to change behaviours such as being aware of food wastage and impact on the environment

Fostering a sense of inclusion also extends to employees providing a sense of stability, support with wellbeing, involvement in decision making and communicating more frequently than normal. For young people, that means providing support to develop financial capabilities, delivered through schools, and helping them get employment-ready is key.

Retail banks now have the opportunity to position themselves well for the future by stepping up and playing a pivotal role as the backbone of the financial system helping to rebuild customer financial lives. Wider adoption of public purpose vehicles such as those adopted by Green banks – as specialised financing facility or a separately managed facility can act as focal point for pursuit of bringing societal and environmental focus to the fore. This constitution offers the potential of enabling boards to place stakeholder purpose over shareholder and in turn strengthening their own relevance, sustainability and brand.