ESG Culture in Finance; With SME Bank, Finfra, SaaScada, The Upright Project and Hexaware Mobiquity

Paytech covers any technological innovation that changes the way we pay. To kick things off, we are placing the focus on ESG finance.

One topic that continually captures more attention in finance is ESG: Environmental, Social and Governance. Environmental targets have become increasingly publicised; with some firms, big and small, accused of ‘greenwashing’, while simultaneously failing to play their part.

But, as the name suggests, ESG spans further than just environmental aspects. The social and governance of ESG are also capturing more and more attention. In an effort to understand just how this landscape has changed over time, we reached out to experts and asked ‘How has the culture surrounding ESG changed in finance?’

‘Good ESG information really helps small businesses get funding’

Virginijus Doveika, CEO of SME BANK, explained the growing demand for transparency: “In recent years and this business climate, there is an escalating demand for transparent ESG impact data from companies.

“Global trends and regulatory frameworks like the EU taxonomy are making these topics important for investors and banks, making ESG information a key way for companies to show their impact on the world. Still, there’s a big gap between big companies that can provide clear ESG information and those that can’t, especially smaller businesses.

“Investors’ growing attraction for climate and social impact consideration in their portfolios has intensified the reliance on ESG data as a risk management indicator. They use ESG info to decide if a project is a good fit and to check how it performs compared to standards like the EU Green Bond standard. This dynamic creates a challenge for SMEs lacking precise data, impeding their access to credit options in the burgeoning sustainable finance sphere.

“Having good ESG information really helps small businesses get funding. Focusing on ESG is now essential to stay competitive. For new businesses, having this info is absolutely necessary, and being open and clear about it is a must. For emerging enterprises, quality ESG data isn’t just a requirement; it’s a must. Transparency in this area is non-negotiable.

“In recent years we noticed rapidly increasing demand for financing from SMEs investing into sustainable projects, digitalisation and innovations. For example, this year we signed the guarantee agreement with the European Investment Fund under the InvestEU programme to guarantee a portfolio of more than €37million in new loans for SMEs in the Baltics, Finland and the Netherlands. In nine months we financed 80 per cent of the portfolio for SMEs investing into specifically sustainable projects.”

Increasing ’emphasis on responsible growth

Markus Prommik, CEO and co-founder of embedded lending platform Finfra, explains: “In recent years, the culture surrounding ESG in finance is moving from a mere checkbox exercise to a pivotal driver in decision-making.

“The financial industry, once predominantly driven by returns, now places equal emphasis on responsible growth. Operating a fintech startup in Indonesia, a region uniquely susceptible to climate challenges and socio-economic disparities, I’ve witnessed firsthand the transformative power of integrating ESG principles.

“Emerging markets, like Indonesia, are at the epicentre of this shift. As the demand for financial inclusion grows, so does the realisation that sustainable practices are not just ethical but also economical. ESG-focused strategies often lead to more resilient business models, catering to a broader audience and ensuring longevity.

“As the CEO of an embedded lending platform, I believe it’s our collective responsibility to drive this change, ensuring that as we progress, we leave no one behind and tread lightly on our planet.”

Many ‘ESG initiatives are still reactive’

Steve Round, co-founder of core banking engine SaaScada, discusses his take on why a reactive approach to ESG initiatives is no longer enough: “Regulation in ESG has rapidly evolved and consumer demands for responsible finance have put pressure on FS firms for transparent disclosure.

“But for many firms, ESG initiatives are still reactive, not proactive, and they could do so much more to improve their environmental and social impact by making ESG central to their culture.

“Technology is now making it possible for firms to understand how investment and purchasing decisions affect the planet ‒ measuring everything from the carbon footprint of day-to-day purchases and the ESG impact of pension investments. With a data-driven approach to transaction monitoring and loan origination, FS firms can be the greatest corporate citizens.

“Cloud banking engines can provide financial institutions the visibility needed to monitor the social and environmental impact of business operations, breaking down data silos and bringing together real-time data from disparate sources. This enables FS firms to access data quickly and cost-effectively to inform business decision-making, make ethical choices, and give incentives to customers to deliver real change. But so far this technology isn’t being harnessed by most firms.

“Ultimately, a more collective effort is needed to achieve sustainability goals. Unless all financial institutions take ESG seriously, we won’t move the needle. With a coordinated approach, the finance industry will be able to drive tangible social and environmental change that extends beyond their own boundaries.”

‘Stakeholders are demanding more of businesses’

Annu Nieminen, founder and CEO of The Upright Project, “In general, I think it is widely accepted that in 2023 ESG is something that the finance world should be ‘doing’, but as different reporting standards abound, the myriad of details that can be found about a company’s ‘sustainability’, ‘ESG’, or ‘impact’ these days can be quite overwhelming.

“Sometimes it is hard even to understand what question all these details aim to answer and how they relate to making a true difference to the existence of the company.

“A cultural shift I have noticed these days is that stakeholders are demanding more of businesses. It used to be enough for a company just to make money as long as it did not break any laws.

“Now fintechs need to present a rationale for the existence of the company, one that reaches beyond shareholder value.

“This does not come just from the regulator or investors, but increasingly it is also employees who are asking for better explanations for their employer’s purpose and impact. All in all, it is a big transformation, and not everyone will emerge as a winner.”

‘Banks can’t afford to take their foot off the ESG pedal’

Peter-Jan Van De Venn, VP of global digital banking at Hexaware Mobiquity, explained: “According to recent research, sustainable banking was a top concern for almost half (41 per cent) of UK banks in 2022, but in the space of twelve months this has slipped to just over a quarter (26 per cent).

“From board level downwards, banks have been concentrating on their bottom lines in the last year, forcing sustainability to take a back seat.

“While it’s understandable that banks are feeling economic pressures, there’s a risk that focusing on the immediate crisis will see them miss out on the long-term benefits sustainable banking can bring.

“Now more than ever, they should be focusing on sustainability initiatives, unlocking a wide range of benefits, from better customer retention to enhanced brand reputation. Despite the challenging market conditions, banks can’t afford to take their foot off the ESG pedal. They need to keep driving forward or will stop short of their targets while competitors overtake them.”