Sustainability - financial service providers have a responsibility

The European Sustainability Reporting Standards (ESRS) and the incipient obligation to report on sustainability are becoming a burden for those already "obliged" to do so. But even those who are not yet obliged should start as soon as possible - in order to secure sources of refinancing, position themselves attractively on the market and open up new opportunities.

The financial services sector plays a central role in shaping our economic future; it is the "transmission belt" from political will to economic implementation. Irrespective of this, a conscious shift towards sustainability has taken place in the industry in recent years. Banks, leasing companies and factoring providers are increasingly focusing on environmentally friendly activities - both for themselves and in their financing. In this article, we highlight some important steps that financial service providers can take to become more sustainable.

Focus on sustainable financing

All sector-specific associations are dedicated to the topic of sustainability. The Association of German Banks emphasizes the importance of "sustainable finance" - with the triad of "environmental", "social" and "governance". Financial service providers are not only required to adopt a sustainable approach themselves, but also to develop and offer financial instruments that promote sustainability.

Source: bankenverband, fokus | unternehmen: Sustainable Finance, p. 8

The German Bankers Association (BFACH ) is also actively committed to sustainable finance. In its 2019 annual report "Sustainability", the association calls for financial institutions to rethink their business models and integrate sustainable criteria into their decision-making processes in order to create long-term value.

The Federal Association of German Leasing Companies (BDL) points to the use of environmentally friendly technologies and sustainable investments that are made possible (more quickly) by leasing as a financing option. From the 2023 annual report: The industry is already financing future investments in photovoltaic or biogas plants, wind farms, heat pumps, refrigeration, air conditioning and ventilation technology. Tradespeople are using leased electric vehicles and charging stations, while transport companies are leasing climate-friendly streetcars and trains. Bicycles are also experiencing a new boom thanks to leasing. Over a million e-bikes and bicycles have been put on the road in the past two years through leasing.

Sustainability is also increasingly being taken into account in the factoring business - if only to continue to obtain favorable refinancing. As a result, many medium-sized factoring companies are realizing that they need to align themselves with sustainability criteria at an early stage. Corresponding initiatives that promote ecological, social and governance standards already exist. Here are two examples:

ESG-linked factoring by SüdFactoring for Leadec as an innovative financing instrument: the use of ESG-linked factoring helps to ensure financial stability and support sustainable business models. Leadec's sustainability activities are reviewed by an independent agency, in this case EcoVadis.
Sustainable supply chains: Increasingly, factoring companies are requesting evidence of sustainable practices in their clients' supply chains (ESG) and taking this into account when purchasing and financing receivables.

The question is not "if", but "how"

The financial services industry in Germany has recognized that sustainability is not only a moral obligation, but also a strategic necessity. Most of them are already working intensively on appropriate solutions.

We at NAVAX are convinced that these enormous challenges can be solved together. Cooperation and partnership are needed in order to continue to survive on the market. We have compiled some implementation aids for your company here.

Sustainability standards and criteria: The implementation of clear sustainability standards and criteria is crucial to create a uniform basis for the financial industry. The inclusion of internationally recognized standards, such as the UN Principles for Responsible Banking, can serve as a guide.
Training and awareness-raising: Comprehensive training of employees in the financial services industry is essential to promote a deep understanding of sustainable action or the development of new financial products. Through training, financial professionals can better recognize how to integrate environmental and social factors into their daily decision-making processes. This helps to create awareness of sustainability at all levels of the industry.
Integration of ESG factors (environmental, social, governance): The integration of environmental, social and governance (ESG) factors into business strategies is a must, enshrining sustainable action strategically as well as in day-to-day operations. The financial sector must pay greater attention to ESG criteria to ensure that investments and financing are structured responsibly in the long term. The implementation of ESG metrics in valuation and risk management processes is a measure that is critical to success.
Promote green finance instruments: The development and promotion of green finance instruments are crucial to support sustainable investments. Financial service providers can offer special financial products that specifically target projects with a positive environmental impact. This can range from green bonds to sustainable investment funds that offer investors the opportunity to invest in environmentally friendly and socially responsible companies.
Build partnerships and networks: The financial industry should increase partnerships with sustainability-minded organizations, businesses and government agencies. By working together, best practices can be shared, synergies can be created and innovative solutions for sustainable financial services can be jointly developed.
Transparent reporting on sustainability performance: Transparent reporting on the sustainability performance of financial institutions is key. Clear and comprehensible reports enable stakeholders to understand and evaluate the efforts of companies. This not only promotes customer trust, but also creates an incentive for companies to continuously improve their sustainable practices.
Create incentives for sustainable action: Introducing incentive schemes, such as tax benefits or lower capital costs for sustainable projects, can encourage the financial industry to invest more in sustainable initiatives. Through such incentives, financial institutions can actively contribute to driving forward a sustainable transformation of the economy.
Sustainability increases attractiveness in the job market: "Young" employees are increasingly choosing their future employer based on its ecological footprint. A sustainable company profile not only promotes environmental awareness, but also strengthens the employer image and long-term employee loyalty. These companies position themselves as future-oriented and attractive employers.

The clear focus on environmental, social and governance issues helps to shape a sustainable economic future. We at NAVAX are committed to supporting sustainability and our solutions create the basis for processing the new ESG and asset-related data.

If you are looking for an innovative partner to implement your sustainability strategy, please contact us using this form.

Sources:

Finance Business Next

Sustainability - financial service providers have a responsibility

Focus on sustainable financing

The question is not "if", but "how"

Philipp Oberleitner