While environmental considerations are undoubtedly crucial in the current global climate, the potential imbalance in ESG priorities does pose a challenge and must be considered if the financial services industry wants to improve as a force for social good. This requires companies to integrate social impact into their longer-term strategy.
Social impact initiatives often require sustained efforts and a long-term perspective. Driven by the imperative to deliver short-term returns for shareholders, companies in the financial services industry may find it challenging to invest in projects that have a more extended timeline for impact realisation.
Business leaders need to understand that their organisations will have a significantly greater social impact by carrying out longer-term projects like this, rather than through volunteering or pro bono services.
Consequences of ignoring social impact
At a time when consumers and investors are increasingly prioritising social responsibility, the financial services industry faces significant risks if it does not change the way it thinks about social impact.
Companies that lag behind their peers are at risk of tarnishing their brand’s image, eroding their brand value, and losing trust among their stakeholders.
This can have implications for a company’s ability to attract and retain top talent. A PwC survey found that 83 per cent of employees are more likely to work for a company that stands for social causes.
Therefore, if companies are not prioritising improving their social impact, they risk limiting the pool of talent at their disposal, and the benefits that this talent could bring to their company.
The growing emphasis on social impact and ESG more broadly will also bleed into regulations, as regulators tighten the rules around “S” disclosures.
Companies that do not stay ahead of the game when it comes to implementing, and reporting on, social impact are leaving themselves vulnerable to major compliance risks in the future.
On the flip side, this emphasis on ESG will offer financial institutions a big opportunity for revenue generation through ESG finance and banking products, such as social bonds.
Companies that can also show off how they are positively impacting the communities around them, through social impact projects, will appeal to investors who are increasingly integrating ESG criteria into their decision-making processes, enabling greater access to capital and growth opportunities.
Tips for improving social impact
1. Increasing collaboration and using external partnerships
Increasing collaboration and forming external partnerships are essential strategies for financial institutions. In the Kearney Index of Social Performance, only 12 per cent of financial services companies reported working with NGOs to execute on projects.
