Environment, Social, and Governance (ESG) metrics are used to assess organisations across all industries. To perform well on the ESG scale, it is important to move beyond superficial measures and ingrain it into a organisation’s culture. In this article we take a deeper look at the importance of ESG for the banking sector.

Expanding customer base

Today’s potential customer pool is not homogenous. As the world wakes up to the increasingly difficult challenge of climate change and sustainability, customers and clients, of all types, care about an institution’s environmental and social footprint.

The larger the organisation, the more the scrutiny. In order to expand their client base and ensure they are able to target users of varying backgrounds, preferences, and age groups, banks must also focus on ESG.

Millennials, for example, are highly driven to invest in stock and portfolios with a credible and visible ESG track record. Hence, any firm that fails to take this into account risks limiting its customer base.

Attracting investor interest

ESG is now mainstream, but there has long been parallel chatter about its importance from an investor point of view. Investors are increasingly placing their funds in ESG-centric opportunities.

In fact, investors take into account a company’s ESG rating and detailed report when evaluating potential investments.

The same applies for clients who are looking to tie up with investment banks. According to Morningstar, ESG funds saw an inflow of more than $20 billion in the first half of 2020. Hence, an investment without a strong ESG credentials will become less attractive for investors.

Appealing to employees

Just like customers, employees too are aware and cautious of the type of businesses they associate with. They want to feel the empowerment of working with an environmentally and socially responsible company.

It not only adds more purpose to their work but also helps them feel that they are contributing to a meaningful cause.

How to train your banking staff for ESG

Everyone has responsibility for ESG in a financial institution. But to achieve this requires cultivating a culture in the organisation that places a high priority on ESG.

This means that everyone from your C-suite to new joiners understands the ‘what’, and more importantly the ‘how’. Here’s how you can facilitate that:

Role model transparent and ethical behaviours

For employees to embody any new concept, they must feel that the organisation is deeply serious and cares about it as well.

It is, hence, crucial that banks are modelling actions that are environmentally, socially, and politically correct.

Some banks have historically faced criticism against the impact of their lending practices. It is key that banks and financial institutions are transparent and take initiatives that demonstrate strong ESG credentials.

Employees can only align with the bank’s measures to be more ESG-conscious if they are able to see that the institution is committed to it.

Utilise simulations in the training

Every day we continue to read about the impact of climate change. Yet, while these hit the headlines, for an individual to play their part in a banking context, they need to grasp a practical understanding of the issues and the likely impact of their actions be it investment, lending or operational decisions.

This is where ESG and banking simulations can be very helpful in developing practical skills, knowledge and insights.

For example, MDA Training’s ESG Investing Asset Management Simulation is designed to offer a number of practical learning takeaways. Participants step into the shoes of an investment manager to manage a portfolio.

They experience first-hand how investment managers balance the challenge of generating healthy returns, whilst responsibly investing to maintain strong ESG credentials.

Participants learn by doing, engaged in highly experiential, interactive and insightful workshops. A practical simulation-based approach better enables employees to apply learning from other ESG-related learning content too.

Summing it up

ESG is a powerful reality for the corporate world. For financial institutions, its importance is heightened further as they continue to face scrutiny for their environment and social footprints.

To this end, to gain the trust of clients, customers, employees, and investors alike, all banks need to continue to drive their ESG credentials.

This involves extending ESG awareness and training to employees as well. To succeed in doing so, banks must first embody all the ESG principles and weave them strongly into the company’s ethos for employees to follow suit.

To complement in-house initiatives, which often focus on more traditional workshops and speakers, banks should also consider experiential simulations that allow employees to engage in and apply their learning and understanding of ESG.