• Friday, February 23, 2024
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Sustainability initiatives driving digital transformation for retail banks – report

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Retail Banks have recognised the need to invest in environmental, social and governance (ESG) initiatives building sustainability into their digital transformation programs ESG Initiatives, a Boston Consulting Group (BCG) Banking Report has revealed.

The new report finds that ESG-related products in core business lines could generate substantial revenue for retail banks, as concerns over climate change have become decision drivers for customers, investors, and policymakers.

Retail banks are responding by building sustainability into their digital transformation programs. Three-quarters of retail banks plan to increase spending on environmental, social, and governance (ESG) initiatives, almost 20 percent of them significantly, according to a new report by Boston Consulting Group (BCG) published recently.

The report, titled Global Retail Banking 2022: Sense and Sustainability, reveals that one-quarter of retail banks report that ESG is a primary focus area for their digital transformation, and another 38 percent say that ESG is a key criterion in selecting and prioritizing digital transformation initiatives.

Nearly half of retail banks are primarily focused on environmental sustainability issues, such as reducing energy consumption in offices, and 60 percent are prioritizing governance issues, including managing critical risk incidents, building cyber-resilience, and developing predictive risk analytics to ensure improved preparedness and mitigation.

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“Sustainability has moved up the priority list for all stakeholders, making it the next frontier of competitive advantage for retail banks and a pillar for future growth,” said Thorsten Bracket, a BCG partner and director and co-author of the report.

“In addition to promoting sustainable behaviours by customers, ESG-related products could generate considerable returns for retail banks. A 20 percent ESG-related share in new retail banking revenues in the next five years, for example, would result in about a 10 percent share of total retail banking revenues—or about $300 billion—in 2025.”

“In Nigeria, banks are exploring opportunities to leverage sustainability to address current and systematic challenges. For example, many banks are substituting diesel-powered generators with solar panels and driving lower carbon emissions at their operational branches. Banks in Nigeria are also using sustainable finance as a growth lever with benefits oriented towards delivering client value.

“Access Bank’s recently issued green bond demonstrates the high demand and potential for green capital in Nigeria and on the continent. Going forward, a more structured approach will be critical to anchor “Sustainability as an Advantage” and deliver long-term value for banks,” according to Phillipa Osakwe-Okoye, principal, BCG Nigeria.

BCG’s 2021 retail banking consumer sentiment survey, which covered 25 countries, found that 20 percent more people voiced increased trust in their bank during the COVID crisis than at the start of the pandemic in 2020. While most customers say they have two or three banking relationships, a large majority (70 percent) still secured their last product from their primary bank. Customers want their banks to feel like a “good friend” (31 percent) that they can turn to for honest advice, and a “school” (11 percent) where they can obtain financial guidance. When it comes to keeping personal data secure, customers trust their banks even more than their doctors, and four out of five customers are willing to disclose more data to their banks if they value a new service or feature.

According to the report, global retail and private client revenues are expected to grow at more than 6 percent a year through the 2020-2025 period.