ZURICH, Switzerland – Large financial institutions’ responses to social issues are shifting from a cosmetic approach to a core investment strategy. At TBLI 2013, Nancy Gephart hears how times have changed.
Throughout the 2000s, large financial institutions loved visibility. Consumers were becoming increasingly concerned about the social and environmental consequences of big businesses’ activities, so major banks felt the need to prove their virtue in a highly observable way. Morgan Stanley built playgrounds for underprivileged youth. TD Bank planted trees in urban areas. Bank of America built low-income housing. All of these projects had clear positive social effects and were highly visible, leading to widely publicized photos of bankers “doing good.”
Today, though, this sensibility has shifted, and financial corporations are now viewing environmental and social issues in a more strategic way. “Today, asset managers are thinking about integrating ESG [environmental, social and governance investment] into all asset classes,” said Henry Schilling, a senior vice president at Moody’s, a credit rating agency.
Although much of this is still done to impress consumers, in financial services, where risk is king, investors are now recognizing that these “feel-good” ESG practices actually have financial benefits in mitigating political, climate and other risks.
“Increasingly, academic studies are validating the notion that high adopters of ESG considerations as a risk mitigant, or to enhance performance, translates into improved results,” Schilling said during an interview at the TBLI 2013 Conference in Zurich, Switzerland. “To the extent that they can integrate those factors and produce better performance results, they think that there’s value to that.”
This doesn’t mean large financial institutions have abandoned the photo opportunities altogether. In fact, for some of them, PR-based social initiatives have become even more important. But they’ve now been integrated into the company’s core strategy in a more meaningful way.
“CEOs, directors and management want to attract the best and brightest people, and the best and brightest people of [the younger] generation care about these things,” said Michael Eckhart, global head of environmental finance at Citigroup.
“You can say it’s for PR if you want to cheapen it, or you can say it’s for the overall leadership of the company, strategy, image and motivating people to buy your products,” he said.
By bringing these considerations into their core business, some large financial institutions have even dropped the publicity angle completely. Johanna Köb of Zurich Insurance Co. noted, “I’ve been talking to fund managers who say that, in the U.S., there are funds now doing ESG, but they don’t tell anybody about it” because of the hostility toward green-washing and any association with climate change.
Rather than using socially and environmentally responsible projects purely as a PR tool, financial institutions are now thinking seriously about how these efforts play into their core business. Highly visible social projects will undoubtedly continue to appear, but these institutions see ESG as more than building playgrounds and low-income housing. Instead, they view it as critical to their overall investment strategy in the long term.