The FSI Industry is under pressure to take a leading role in sustainability. The topic is no longer a niche, like in past years where we found only few green investment products to invest in. Their green aspects were mostly about not-investing in certain industry sectors (Oil and Gas, Tobacco, Weapons etc.).
Today the stakeholders are increasing pressure on financial institutions to take sustainability seriously:
- Customers: shift towards sustainable products and services and walk away from less sustainable brands
- Investors: are investing more and more in ESG assets and actively de-investing in less/not sustainable investments
- Regulators: demand ESG reporting and expect Banks and Insurers to play a pivotal role in “adjusting the financial flows towards ESG” as agreed in the 2015 Paris Climate Conference statement.
- Business: CEOs must implement sustainability in business operations
- Employees: must remain/become attractive for Millenial and GenerationZ individuals
The markets are moving
Countless Global-, Regional- and local regulators increase the pressure on their stakeholders
- Globally: Financial Stability Board, Task force for climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB)
- Regionally: EU Taxonomy, ECB&EBA initiatives and Guidelines, ASEAN taxonomy consultation
- Local: UK PRA; Malaysia finalized principle-based taxonomy;
As a direct consequence of the 2015 Paris Conference on the impacts of climate change the EU presented a set of standards like the EU Taxonomy and the EU Green Bond Standard. At the same time the EU Green Deal was presented. It foresees to push 1tn EUR to the markets via specialized banks.
The EU Taxonomy (and all other standards) will significantly influence the business of Banks and Insurers and their products offered to all other Industry Sectors.
To be considered as “taxonomy-aligned” business activity it must
- Substantially Contribute to at least one of the 6 environmental goals (climate change adaptation/mitigation, transition to circular economy, pollution prevention etc.)
- Do no significant harm on any of the other 5
- Comply with minimum safeguards along the OECD guidelines on Human Rights, labour rights, combating bribery etc.
In final consequence it links the status to the business activity, so the sector must answer questions of their stakeholders like:
- Customers: what is the price of a loan/insurance protection to buy/insure a car with a conventional engine (Diesel, Gas) vs. an electric car?
- Investors: what is the proportion of green investments in the portfolio?
- Auditors: to what extent are they taxonomy aligned)
Banks and Insurers are influencing all other industry sectors with the pricing for their products. Munich Reinsurance: doesn´t give protection for coal-based electricity production, Oil exploration sites etc. anymore or reduces these exposures consequently.
SAP as a partner for sustainability in the FSI sector
SAP itself, puts sustainability to the center of its business strategy for more than 10 years. Details can be found in the annual integrated reports of financial and non-financial information like becoming carbon neutral in 2023.
“What you can´t measure you can´t steer”
SAP and it´s software can help Banks and Insurers to become EXEMPLARS in the market by making sustainability related KPIs measurable and visible. Therefore we provide a sustainability control tower with all ESG relevant information for internal steering and external disclosure purposes from the whole ERP system (HR, Travel, Sourcing, Treasury, Financial Products Subledger,…) and optionally external sources.
At the same time, our flexible modelling framework (SAP Profitability and Performance Management) brings sample content for the EU Taxonomy and TCFD and gives our customers access to a modelling environment to model own scenarios for the Core Banking and Core Insurance business. With that, we not only address the regulatory aspects, but also set the scene to ENABLE modern and ESG aligned Banking and Insurance products.
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