Fostering a culture of sustainability

17/09/2021 The tone at the top typically establishes the foundations and values upon which a culture of sustainability is built. Developed at board level and communicated consistently across an organisation, ESG values need to be reflected in a bank’s governance structure if they are to last.

As regulators and banking institutions find themselves on the same page on the implications of climate change to the financial system’s stability, climate and ESG factors will increasingly make their way into governance frameworks. According to a recent Mazars study, Responsible banking practices: benchmark study 2020, 74% of the banks assessed have now implemented measures that foster a culture of sustainability and have adapted their governance structure accordingly, compared to 49% in 2020.

Measures to implement senior commitment

Giving responsibility to senior management to develop a culture of sustainability is becoming the norm to ensure sustainability is embedded across all business functions. According to our study, 62% of banks assessed have allocated sustainability responsibility to senior management. Alongside policies and statements that formalise sustainability values, banks also rely on training programmes to build and maintain sustainability awareness.

Banks are also expected to consider ESG skills from a board composition perspective. Similarly, including ESG performance criteria when setting remuneration packages aims to better align senior commitment with sustainable values. Currently, only 43% of banks covered by the study incorporate ESG criteria in board composition and 41% do so in incentive structures.

Adjust the lens

When looking at measures to encourage a culture of sustainability, it’s essential to adjust the lens to raise awareness across specific sectors. Explaining responsibilities and developing training programmes to identify ESG risks will differ between, for example, front office, credit risk and compliance functions. Equally, developing detailed industry-specific risk guidance notes covering a broad range of environmentally and socially sensitive activities across sectors will further support business line and function teams. Importantly, consider the chain of command and who is responsible for the strategic approach to sustainability.

Integrating ESG skills into selecting board composition and measuring ESG performance when setting remuneration remain infrequent practices, according to our study. When incorporating ESG criteria into board composition, determine how this will be proven, including educational backgrounds and leadership positions at sustainable finance institutes or other non-profit organisations. When developing ESG criteria as part of incentive structures, consider annual incentive scorecards and weightings for measures linked to outcomes related to ESG targets and metrics.

Actively communicating and advocating top-level buy-in, developing employee awareness and expertise, and remaining flexible in responding to new sustainability developments will help foster a corporate culture that is flexible and fit for the future.

Fostering a culture of sustainability requires banks to be forward-thinking and directly embed sustainability issues into their strategic vision. Ensuring governance structures reflect this vision at the highest levels across the bank is an essential element of sustainability success.