Organizational models for banks: Seven attributes of ESG success

28/03/2024 Article

Since every financial institution has different attributes and goals, it’s important to remember that there is no definitive answer to what makes the best organizational structure for ESG success. However, a Qorus and TNP Consultants’ research suggests that there are seven key attributes that sustainability leaders have in common:

1. They go beyond compliance and pursue growth

Those financial institutions experiencing the most success recognize that ESG is not simply a tick-box exercise – its value goes far beyond simple compliance and becomes a core competitive differentiator. Leaders take advantage of the opportunity to use ESG data to offer innovative services and solutions that exceed customer expectations and deliver greater value to stakeholders.

“We have to invest in regulatory compliance, so let’s figure out how to do that in a way that can advance our sustainability agenda and open up new business opportunities”, said Sparebank 1 SR-Bank’s Sivertsen.

2. Board directors and senior leaders connect more and more with external stakeholders

The more you connect to your ecosystem and environment, the more effective your transformation. Those board directors and senior leaders who go out of their way to communicate with external stakeholders are three times more likely to see an improvement in ESG factors. These stakeholders should be as varied as possible – think clients, shareholders, investors, analysts, government agencies, regulatory bodies and beyond.

3. They focus on strengths in the areas that matter most to external stakeholders

Banks and insurers who take the time to understand what matters most to external stakeholders are more likely to succeed with their ESG initiatives. Regular and transparent dialogue is important to identifying and validating the most critical areas to focus on.

“Material assessment played an integral role in developing our sustainability organizational structure”, said Assi. “The material topics we identified helped us organize and assign responsibilities around the ESG issues that matter to our business and are significant to our key internal and external stakeholders, in line with NBK’s ESG strategy. To support and drive sustainability across the Bank, we view having a more modular organizational design rather than a central sustainability organizational structure as more effective and efficient. This allows our identified material topics and ESG issues to be assigned to business units and groups that have expertise on the topic and will be primarily responsible for leading the Bank’s response to it”.

4. The C-Suite oversees ESG-related work

The level of commitment and support from the top management and the board of directors is a critical success factor in a robust organizational model.

Having a dedicated head of sustainability who reports to the CEO or another C-suite leader can help demonstrate that the bank is serious about sustainability and ensure accountability. For example, a formal board committee that oversees sustainability issues can also help educate the board and align sustainability with the overall strategy of the financial institution.

“It’s incredibly important to have top management buy-in, overseeing ESG matters in a strategic way”, said Maxime Druais, Head of Environmental Transition at BPCE.

“The top management should then onboard different departments and trades – including senior bankers and the risk department. At BPCE, we have 30 people working on sustainability matters linked to financing and 35 people in on corporates matters linked to sustainability. We establish quantified metrics to demonstrate the concrete impact of our ESG initiatives and are constantly looking to broaden the scope of our expertise in this regard”.

5. They have a central ESG team as well as cross-functional ESG projects

The degree of integration and alignment between the sustainability team and the rest of the business units can make the difference between the success or failure of the ESG strategy. Depending on the bank’s size, complexity, and sustainability agenda, there are different ways to structure the sustainability team and its relationship with the other functions. Some banks may opt for a large team that plans and coordinates most sustainability initiatives, while others may prefer a leaner team. The third option is to have a central function that deploys a strengths, weaknesses, opportunities and threats (SWOT) team to the various business units as and when required. The key is to find a structure that fits the bank’s business model and organizational culture – one that is flexible to adapt when necessary.

“Traditionally, sustainability has been led at a group level, and smaller, local teams were mainly focused on CSR activities”, said Sandra Schoonhoven, Sustainability Lead at ING Group. “We are now seeing these local teams expanding to support ESG initiatives within their countries. This fits well with our approach of integrating sustainability into all areas of our organization”.

6. Purpose is embedded throughout the organization

70% of employees now demand purposeful work. By embedding purpose throughout their products, brand portfolio and culture, financial services companies can improve motivation and increase the appetite for change – and strengthen ESG initiatives as a result.

7. Incentives are tied to ESG metrics

Those financial services organizations that are most successful with their ESG initiatives are three times more likely to have tied their CEOs’ and CFOs’ financial incentives to ESG metrics. This approach not only adds accountability but demonstrates the importance of ESG both internally and externally.

This article is an extract from the study "Unveiling efficient organizational models for ESG and sustainability in financial institutions" by Qorus and TNP Consultants. Download your free copy

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