Championing the ‘S’ In ‘ESG’

  • 9 February 2024
  • Blog | Green Finance | Blog

Despite climate concerns often being prioritised over other aspects when designing an ESG strategy, it’s essential that banks keep diversity, inclusion and social initiatives top of mind. 

In recent years, environmental, social and governance (ESG) concerns have risen up the global agenda. The climate action movement has built up a head of steam and corporations are gaining a more nuanced understanding of the connection between social factors and customer experiences.

But while there is a widespread understanding of the need for more sustainable operations, the precise meaning and role of the social element of ESG is often poorly understood. At a time when both consumer and employee attitudes and expectations are evolving, businesses are realising the need to integrate social issues into their sustainability outlook. As one PwC article puts it: “An organisation’s purpose can only be fulfilled if environmental and social challenges to the business are considered together.” So how can banks incorporate social factors into their ESG frameworks?

Towards a fair and just transition

In the COP26 Private Finance Strategy, Mark Carney, Special Envoy, Climate Action and Finance, United Nations (UN) set out expectations that “every professional financial decision takes climate change into account”. But ensuring a fair and just transition requires broadening out from climate action to include the wider aspects of environmental and social impact.

Shona Matthews, Head of Regulation and Policy, Chartered Banker Institute, says: “All lending and investment decisions; all financial products, services and customer experiences; all the advice given to clients and customers; needs to be informed not just by financial outcomes but also by sustainability impacts in the widest terms.

“Regulators globally are working on increasing disclosure requirements around DE&I [Diversity, Equity and Inclusion]. We’re helping our members understand the extent of this. While current spend on ESG looks significant on paper, it’s often too niche; focused mainly at board level or too narrowly focused on climate change to the exclusion of other factors such as nature and biodiversity, human rights, and inclusion and diversity.

“Professional bodies such as the Chartered Banker Institute play a key role in embedding, enhancing and sustaining a culture of responsible, customer-focused, ethical professionalism. We can do this by codifying professional values, attitudes and behaviours and by ensuring the upskilling and ongoing professional development of financial professionals.”

Real-world impact of ESG Social

ESG principles are not just a “box-ticking” exercise. They are designed to be translated into meaningful change for the customers and communities served by banks and FS organisations. This can be seen in the way banks are beginning to better serve vulnerable groups. In 2022, TSB launched its “Emergency Flee Fund” which offered up to £500 of support for customers escaping abusive relationships—this was in response to rising domestic abuse rates driven by pandemic lockdowns and the ongoing cost-of-living crisis. Such social policies don’t just come from external demand, they can also be motivated by the experiences of banking professionals.

When Rosie Lyon, Vulnerability Specialist, Allied Irish Banks (AIB) first disclosed her experience of domestic abuse in late 2019, she struggled to get the support she needed. “At that time, most banks didn’t have anything in place to support staff experiencing domestic abuse,” she explains. “There was no process in place for disclosing my domestic abuse and I ended up sobbing to my new manager over a Skype call.

“Fortunately, he was very supportive, but it could have been horrible. These conversations can be awkward to have, especially if the manager doesn’t have any knowledge of abuse and they have someone crying down the phone at them. It made me realise something had to be done.”

Lyon went on to develop an internal domestic abuse policy for AIB, which would in turn win her the Young Banker of the Year award in 2021. The result was the Domestic Violence & Abuse Handbook, and an ongoing process of internal education. “I started giving talks to my department, then the leadership and board teams,” recalls Lyon. “We partnered with the Surviving Economic Abuse charity to provide training to support frontline staff and customers. HR came on board and before the Young Banker Competition was over the policy was out; we’d turned it around within three months.” It’s an example of just how quickly social ESG principles can be translated into real world impacts when banks are willing to evolve in response to social factors.

Milestone policies

AIB is now just one of several banks to have policies in place to support domestic abuse survivors, such as paid leave and temporary hotel accommodation for staff. “It used to be that banks wouldn’t lend to people with poor credit, but in December 2022 AIB launched a pilot offering personal loans at normal APR to domestic abuse survivors,” says Lyon.

Other banks living up to their ESG social commitments include the Co-Operative Bank, which has a mission to end youth homelessness. It has been working with homelessness charity Centrepoint since 2017 and has raised £2m to fund initiatives supporting young people across the UK.

Digital challenger bank Monzo has integrated social impact policies into its operations, from working to improve access to banking for the deaf community to seeking to improve bank account access to those currently excluded from the financial system. 

Best for everyone

There is, first and foremost, a clear ethical imperative for championing social ESG factors. But there are also strategic imperatives. In a world where employees are used to holding multiple roles throughout their careers, banks must place a greater emphasis on attracting and retaining staff, especially as competition within the FS sector intensifies.

“If the bank wasn’t flexible and didn’t support me as a vulnerable employee, I wouldn’t still be working there and it wouldn’t be getting the best staff,” continues Lyon. “By treating staff with respect and putting social policies in place, a business can get the best out of them. You wouldn’t want to work for someone if they didn’t support you. Sick rates are also reduced when appropriate support is provided.”

Lyon is an Inclusion & Diversity representative at AIB and is proud to see her bank supporting staff and customers across a range of social issues from domestic abuse to menopause and mental health concerns such as anxiety or depression. Internally, the bank holds talks and webinars on a range of topics and has launched its Community Fund.

“My experience shows that if an organisation looks after its staff, listens to their experiences and takes actions to support them, then the organisation will be a better place to work,” says Lyon.

Get the word out there

Once your bank has put social policies in place, there comes the question of how you tell your story in an accountable and authentic way. Many banks simply aren’t getting the word out there, says Lyon.

“In banking, we don’t always take the time to shout about the amazing work we’re doing from the rooftops,” she explains. “It’s important to champion the work you do around ESG social. When we released our Domestic Violence & Abuse Handbook we were able to tell the story of how this policy came about. It shows that we’re an organisation that is here for our staff.

“It’s also important to inform customers and wider society as to how we are tackling social issues that impact so many people. It helps people see us in a better light. But it’s also important that engaging with social issues is not seen as a tick-box exercise. We need the right policies, support structures and training in place and we need to be able to understand if it’s actually working.

“Social media means it is much easier for customers to challenge the claims of banks, so they have to be able to demonstrate that they are acting on their social commitments. If they do it right, then it provides better outcomes for both customers and staff, and that benefits everybody.”