By Lisa Marie Chirico
Sustainability is a word that is not often associated with financial services. Today, words with a negative connotation, such as greed and hubris, seem more closely aligned with this sector. What is the likelihood of this changing? More importantly, is there any incentive for investment funds, banks, insurance companies, or real estate firms to truly practice sustainability as we know it?
If true corporate sustainability is intended to go beyond conservation and energy efficiency, it’s apparent that financial services has a way to go. Rife with crises over the past thirty years, from the crash of 1987 (Black Monday), to the economic crisis that ignited the recession in 2008, to their ongoing attempts at reform such as the Dodd-Frank Act, and the Basel III accord, what remains unclear is exactly how companies within the financial sector can comfortably fit into a sustainability model. One key to forging a true path to sustainability might directly lie in social and governance performance, from customer transparency to risk management. It’s also evident that a bit of humility would probably go a long way.
According to the Sustainability Accounting Standards Board (SASB), sustainability performance encompasses environmental, social, and governance factors that have the potential to affect long-term value creation and/or the public interest. SASB’s definition of sustainability echoes the belief that at the heart of what it means to be sustainable, lies a responsibility to one another and to the planet. If profits remain the single motivating factor for a company, the door to sustainability will likely remain closed.
How are profits tied to humility, and does it ultimately matter if financial institutions embrace factors such as social and government performance? The notion of “too big to fail” continues to dog firms that provide financial services. In Andrew Ross Sorkin’s book, Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System from Crisis – and Themselves, the author lays bare the details of the financial crisis and uncovers one of the culprits that seems to be at its core: “While the financial crisis destroyed careers and reputations…it also left the survivors with a genuine sense of invulnerability at having made it back from the brink. Still missing in the current environment is a genuine sense of humility,” says Sorkin.
Another challenge standing in the way of truly sustainable practices for financial services is the rewarding of short terms gains, as opposed to how risk is managed. According to Bloomberg Market’s ranking of the highest-paid CEOs at North America’s 20 largest financial companies, the salaries of these individuals grew an average of 7.7 percent last year, compared with 2011. Coming in at the top of Bloomberg’s ranking is Goldman Sachs Group Inc. CEO Lloyd Blankfein, who received a salary of $26 million in spite of the fact that his firm suffered through various difficulties in 2012 that included job cuts.
Although something akin to humility is challenging for an individual to embrace, let alone a company, the good news is that corporate sustainability is on the upswing. According to Thomas P. Lyon, Dow Professor of Sustainable Science, Technology and Commerce at the University of Michigan’s Ross School of Business, large corporations have decided that it’s in their best interest to practice sustainability, and that it is definitely a “long-term play” for them.
In the retail sector, there are numerous examples of solid CSR practices, such as Marks & Spencer and Nike, who both excel in their ongoing work towards a sustainable approach to their products. Are there any notable “green” role models in the financial sector? Thankfully, yes. One example is the UK Green Investment Bank (GIB). Established by the UK government, GIB (which launched in 2012) has its sights set on becoming the world’s first investment bank “solely dedicated to greening the economy.” GIB currently plans to expand its scope supporting environmental projects such as renewable energy across the country by borrowing and raising debt. In the United States, Goldman Sach’s recent investment of $500 million in the SolarCity fund is a good sign of Wall Street’s widening interest in the rooftop solar market.
While it’s unquestionably important for companies within the financial sector to be environmentally responsible in their day-to-day operations, those actions alone are simply not enough to create viable corporate sustainability. It’s presumable that increased awareness of how companies impact the environment within their supply chains will be a factor in driving real and lasting changes in the CSR practices of financial institutions. Additionally, issues brought to light from the Occupy Wall Street movement such as economic justice and corporate personhood, will continue to drive consumer advocacy.
We live in a fast-changing world that requires corporations to make a shift to a new paradigm that aligns profits with accountability and transparency to their customers, and doesn’t leave the environment as a mere afterthought. Those corporations who choose not to make this shift will almost assuredly be judged harshly by history.