Widespread ‘short-termism’ and a lack of preparedness are factors weighing on the net zero plans of many financial services businesses, a new study by international law firm Mayer Brown has found.
It noted that while nearly three-quarters of business leaders in the financial services sector believe embracing ESG initiatives is a crucial part of their future plans, just 18% of financial institutions and 27% of investment firms have developed a net-zero transformation strategy that extends beyond the next 12 months.
The survey identifies the cost of transitioning to net zero as a significant obstacle, particularly for investment firms, while the evolving regulatory landscape for sustainability and inconsistent disclosure rules further complicate the situation, Mayer Brown notes.
‘Pressure on businesses’
“A move away from short-termism has been at the core of the ESG movement,” commented Tim Baines, partner at Mayer Brown. “On the one hand, there is pressure for businesses to focus on short-term financial returns and profit maximisation. On the other hand, there is a growing recognition of the importance of adopting a longer-term perspective that considers social and environmental factors.
“It is a balancing act that, owing to a number of compounding issues, is making it quite difficult for some businesses to effectively implement their long-term environmental and net-zero strategies.”
In response to the financial and logistical challenges of the transition, many companies are also turning to mergers and acquisitions to accelerate their ESG progress. The report found that 71% of financial institutions and 79% of investment firms view M&A as a means to enhance their environmental credentials and drive organisational transformation.
Financing net zero
Peter Pears, another partner at Mayer Brown, has noted a growing trend towards alternative financing methods in this area, saying, “We continue to see more innovative and imaginative forms of financing for the transition to net zero.
“As sustainable finance has grown it has matured – companies and their advisers are often looking to ‘push the envelope’ in terms of sustainability related structures and sources of capital to access the funding they need. In particular, transition finance, as opposed to pure play green financing, is something we are seeing more and more of.”
Despite these challenges, ESG considerations have become a priority for businesses. Mayer Brown’s study shows that financial institution leaders view sustainability as a key factor impacting their organisations over the next three years.
Similarly, investment firm leaders see the cost of transitioning to net zero as a critical element in their transformation plans. Some 81% of investment firms and 67% of financial institution leaders believe that embracing sustainability is essential for thriving in the future economy, and securing long-term stakeholder and shareholder engagement. Read more here.
