The new drivers of digital transformation: purpose, ESG and long-term value for more stakeholders

For years, wealth and asset managers have invested significantly in transformation programs – by enhancing their business models and products, digitizing distribution and operations, and optimizing their talent base. While there are ample success stories, most organizations are not fully satisfied with the results. That’s largely due to the reality that transformational change is difficult to achieve. It might be even harder to maintain over time.?

But emerging from the COVID-19 pandemic, there appears to be fresh thinking and even optimism about achieving meaningful transformation. Certainly, this experience dispelled the common myth?that large-scale change requires years to execute. The near-overnight shift to primarily digital operations showed just how much and how quickly the industry could change when forced to do so.?A renewed sense of purpose has also energized many wealth and asset managers, with more leaders committed to creating new forms of value for a broader set of stakeholders – investors, communities and society as a whole. That value is not always measured in financial terms.

A recent article authored by my colleagues Sourav Moitra and Scott Becchi highlights how wealth and asset managers can continue to drive change at an accelerated pace. The short answer is that it takes a holistic approach that is business-led, technology-enabled and brought to life via agile ways of working. That approach also helps sustain change over time, which is what many firms are aspiring to do post-pandemic.?

While that article is focused on the how of transformation, we are also seeing an important shift in the why. Let me explain.?

In the past, the need to transform arose from a few common forces:

• Competitive pressures, including threats from FinTechs and other nontraditional players
• The need to develop richer, personalized experiences, such as those offered by large tech platforms and innovators in retail, travel and hospitality, and other sectors?
• The perennial pressure to reduce costs and increase efficiency?
• Necessary upgrades to legacy tech platforms?
• Regulatory pressures also have provided the impetus for targeted transformation initiatives

Today, however, new forces are pushing the industry forward. I’m talking about sustainable finance and environmental, social and governance (ESG) factors. EY defines sustainable finance as any form of financial service that incentivizes the integration of long-term ESG criteria into business decisions, with the goal of providing more equitable, sustainable and inclusive benefits to companies, communities and society. Embedding ESG concepts into investing is perhaps the highest-profile manifestation of sustainable finance, which has a critical role in facilitating the transition to net-zero carbon emissions by 2050.

An analyst recently told me that her firm’s research shows that more financial services firms are directly linking transformation investments to sustainable finance and?ESG. Our conversations with leaders across the industry bear that out, too. The most forward-looking firms see how they can help lead a smooth transition to a greener economy. They also see the threats presented by “greenwashing” and the physical risks of climate change, as storms, flooding and wildfires become more frequent and severe.?

So where does digital transformation fit in with sustainable finance and ESG? At one level, it has to do with being able to manage, analyze and share data more effectively than in the past. That requires integrating data sources and silos and adopting more advanced analytical tools and capabilities. It also means acting on the insights that new systems and capabilities can generate. Those actions can lead to new business models that reflect new market realities, refined strategic objectives and redefined performance measures.?

ESG-driven transformations can certainly benefit from proven practices. To return to our recent article on business transformation, the path forward starts with a clearly articulated future vision and value-driven approach that defines measurable goals for various business capabilities. Clear goals should also be established for the other stakeholders (e.g., communities, employees) that wealth and asset managers serve. But successful transformations typically require strong data platforms and adoption of advanced technologies such as artificial intelligence (AI), machine learning and natural language processing, among others.?

New talent, stronger cultures and new ways of working are also key to enabling transformation. Here again, purpose can provide a guiding light for execution. Consider how a wealth and asset manager that wants to boost financial security and well-being for individuals and families must work closely with partners and other firms in the industry. In this sense, organizational commitments to increased collaboration, including alliances with outside firms and new sourcing models, can be viewed as hallmarks of successful transformation, as many of our clients have demonstrated.?To put it another way, when purpose-driven organizations empower their people to work creatively and collaboratively and equip them with great technology, purpose comes to life.?

In my view, sustainable finance and ESG –?which are both driving digital transformation –are intricately linked to purpose and broader views of long-term value creation. In engaging with senior leaders across the industry during the last year, I’ve noticed how conversations around purpose have significantly broadened. There is clear consensus around the need to increase financial well-being for individuals, families and society as a whole and that such considerations are appropriate ways to measure success.?Financial metrics alone can’t tell the whole tale of business performance.

More financial services executives understand how their companies can play a role in addressing the most pressing social issues, from the retirement savings gap to financial inclusion to climate change. That’s one reason why I think this is a great time to be in financial services. Even as the industry faces great change, it’s promoting vital societal change via sustainable finance and ESG.?

When it comes to motivating an organization to enact a successful transformation, it’s hard to think of a more powerful force than purpose. A clear sense of purpose can provide not only the energy necessary to overcome the many common challenges of digital transformation, but also to fully seize the hugely compelling opportunities.?

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

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