Sustainability Risks and Opportunities in the Financial Services: Vitoria Mann ??
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In the 7th edition of the JCR Journal, we speak to Vitoria Mann, Chartered MCSI, MSc, GSFP about all things Sustainability in the FS.
Vitoria is a financial services risk and sustainability professional with over 10 years experience. Vitoria has recently completed a MSc in Environment and Sustainability. All of Vitoria's thoughts and opinions are her own.
Why is the consideration of Sustainability crucial to the Financial Services industry?
The importance of sustainability to the financial services (FS) industry is emphasised by the profound effect that factors such as climate change, biodiversity loss, gender equality, human rights, and corporate governance can exert on the stability of financial markets. These elements directly influence the quality and functionality of the natural environment, as well as the rights and well-being of individuals and communities.
In response to the recognised threats posed by climate change, biodiversity loss, and social inequalities, numerous FS firms have embraced sustainability strategies. These strategies focus on material sustainability topics, addressing risks and revenue opportunities and contributing to the long-term preservation of corporate value.
The FS sector can play a pivotal role in facilitating sustainable growth. It is instrumental in promoting financial stability as the global economy undergoes the critical transition to decarbonisation. Additionally, FS can contribute with crucial funding for the shift towards a low-carbon world and the establishment of a sustainable economy.
What opportunities arise from the incorporation of Sustainability considerations by FS firms?
Although sustainability is a relatively recent consideration for some FS firms, it presents a substantial opportunity to infuse sustainable practices into core business activities. This integration can stimulate innovative sustainable product development, yielding positive impacts on the environment, society, and business profits.
Firms are actively scrutinising sustainability and climate regulations and voluntary frameworks. This comprehensive approach may involve conducting materiality assessments to shape business strategies and guide the assimilation of sustainability considerations into business models. Widely adopted frameworks encompass the Global Reporting Initiative (GRI), Taskforce on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB), Principles for Responsible Investments (PRI), Sustainable Finance Disclosure Regulations (SFDR), and the EU Green Taxonomy.
The International Sustainability Standards Board (ISSB) has? also introduced standards, namely IFRS S1 and IFRS S2, to provide a global baseline of sustainability disclosures capable of meeting investors’ needs. The standards will facilitate uniform reporting of climate-related risks and opportunities to investors, contributing to more transparency in the FS sector.
Investment firms increasingly realise the advantages of investing in the transition to renewable energy, circular business solutions, and sustainable agriculture. Embracing sustainable strategies aligns with the growing preference among investors for socially and environmentally responsible businesses and has the potential to cultivate a positive brand reputation. Furthermore, sustainable investments can play a crucial role in fulfilling Net Zero commitments, showcasing environmental stewardship and a commitment to responsible and accountable business practices.
How are FS firms identifying and managing Sustainability risks?
One of the functions of financial markets is to assess and price risk, facilitating informed capital allocation decisions. In the absence of accurate information, firms and investors may erroneously value and price assets, resulting in the misallocation of capital.
For some firms, non-financial risk management is integral to their business model. Many? actively consider sustainability risks and integrate environmental, social, and governance (ESG) factors into their business models, operations, and investments. Simultaneously, there is an increase in the adoption of double materiality assessments, aiding in the identification of material risks and informing sustainability strategies. This is particularly pertinent as firms navigate changes stemming from increased regulations, digitisation, the adoption of AI, and geopolitical shifts.
Given the potential adverse impact of sustainability risks on firms and their reciprocal impact on the environment and society, more firms have started to create new sustainability risk frameworks or integrate sustainability and or ESG risks into their existing risk frameworks. A comprehensive sustainability risk approach is essential for identifying, measuring, managing, monitoring, and reporting sustainability risks.
Concerns regarding greenwashing risks hold prominence in regulatory financial supervision across jurisdictions, emphasising consumer protection. Firms are required to provide sustainability information that is fair, clear, and verifiable—a foundation for reliable decision-making. The risk of greenwashing can potentially impact micro and macro-financial stability within the financial services domain.
In recent years, the Bank of England (BoE) has articulated its stance on climate regulatory capital frameworks for firms in scope, highlighting the significance of climate scenario analysis and stress testing to inform the future quantum of capital required for resilience and to facilitate an orderly transition pathway.
Who ensures the promotion of Sustainability within FS firms?
Establishing a robust sustainability governance framework is pivotal for effectively integrating sustainability strategies within financial firms. The responsibility for championing sustainability practices is typically distributed among various internal stakeholders, with oversight of sustainability strategy and performance commonly assigned to the Board.
The Board is often supported by several committees that focus on critical aspects, such as managing sustainability and climate-related risks, ensuring compliance with regulatory requirements related to sustainability disclosures, and overseeing executive remuneration tied to sustainability targets. Simultaneously, the Chief Sustainability Officer is responsible for developing and implementing the sustainability strategy and coordinating sustainability initiatives across the entire organisation.
Within the sustainability governance framework, the sustainability risk team plays a central role in supervising the management, assessment, and reporting of sustainability risks, advising stakeholders on the identification and mitigation of such risks. A collaborative effort is required among various departments, including human resources, legal and compliance, finance, product development, marketing and communications, investments, and IT and technology teams. This multi-disciplinary team collaborates to advance and promote sustainability practices within financial firms.
What qualifications and learning would you?recommend?to someone looking to start a career in Sustainability?
Embarking on a career in sustainability may require a blend of academic qualifications, a grasp of sustainability principles and regulations, practical and soft skills, and a willingness to continue learning, collaborating, and contributing to this dynamic field.
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Consider the following recommendations for academic and financial services-related qualifications and learning platforms:
A bachelor's degree in fields such as Environmental Science, Environmental Studies, Sustainability, Sustainable Development, or related disciplines is highly valued by prospective employers. Some universities also offer specialised undergraduate and Master's programs in Sustainable Business, Environmental Management, Sustainability, or Corporate Social Responsibility.
Explore internships or entry-level positions with organisations dedicated to sustainability. Practical experience is invaluable, allowing the application of theoretical knowledge to real-world challenges.
For individuals looking to transition into a sustainability career, part-time degree programs or Master's degrees offer viable options, enabling a balance between education and continued employment. Birkbeck College in London provides several part-time undergraduate and Master's courses tailored to diverse schedules and professional commitments. https://www.bbk.ac.uk/ .?
Engage in online courses provided by the United Nations
United Nations Environment Programme (UNEP) Open Online Courses
The UNEP?and its?partners?offer various courses on critical environmental issues. https://www.unep.org/explore-topics/education-environment/what-we-do/massive-open-online-courses .?
Sustainable Development Goals (SDG) Academy
The SDG academy offers high-quality resources and guidance on education for the SDGs. https://sdgacademy.org/ .
The United Nations System Staff College (UNSSC)
The UNSSC offers more than 100 free courses on topics that include but are not limited to equity and inclusion, human rights, climate change, stakeholder engagements and partnership and? women in leadership. https://www.unssc.org/courses .?
Certifications have gained significant popularity among financial services professionals seeking to enhance their sustainability and sustainable investment expertise. Some notable certifications include:
Chartered Institute for Securities & Investments (CISI)
Green and Sustainable Finance Certificate?
Climate Risk Certificate
Both certificates are delivered in partnership with the Chartered Banker Institute. https://www.cisi.org/cisiweb2/cisi-website/responsiblefinance .?
CFA UK?
Certificates in ESG Investing, Certificate in Climate and Investing and Impact Investing Certificate.? https://www.cfauk.org/learn/qualifications .
A huge thank you to Vitoria for her insight into Sustainability ??
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