This article is the second in a series of articles written by our Group ESG Officer, Nontokozo Khumalo. Nontokozo is responsible for driving Multitude's ESG and sustainability programme. She has over 10 years of experience in financial services working in ESG and client management. She was previously Corporate Engagement Manager for the Climate Disclosure Standards Board covering the EU, and prior to that, a Sustainability Manager at Standard Bank Group in South Africa.
In this article, Nontokozo is discussing four ways in which Fintech can effectively embed ESG practice. Download the ESG report and read more about how Multitude is approaching its own ESG strategy and ambitions.
How FinTechs can effectively embed ESG practice
FinTechs have started to develop ESG approaches and communicate regarding their ambitions but how can the sector ensure that these approaches are effectively embedded in organisational practices?
1. Link ESG to core strategy
ESG consideration has traditionally been siloed, however, in recent years there has been a trend towards companies embedding ESG into core strategies. Aligning ESG with the core strategy facilitates effective implementation of ESG ambitions and identification of opportunities to generate long-term value for stakeholders. This means, in practice, FinTechs needs to consider how their strategies and products generate positive impact for society and the environment.
FinTechs also need to assess and address the negative impacts of their strategies, products, and processes. As relatively new players, FinTech companies, can consider ESG as part of their strategies, setting targets early in their journey and avoiding greenwashing through early alignment with strategic objectives.
2. What gets measured, gets managed
FinTechs need to measure their environmental impacts including those of data centres and purchases. They must be prepared to set ambitious climate-related goals as stakeholders increasingly require demonstrated commitment to supporting the aims of the Paris Agreement. It is, in addition, important to understand the risks associated with climate change to their business strategies.
Social impacts need to also be assessed with ambitious targets set including towards ensuring the holistic well-being of employees. Social matters have been highlighted during the Covid-19 pandemic and it is expected that stakeholders will pay more attention to these in the future.
3. Set the tone from the top and involve key functions
FinTechs benefit from flat organisational structures providing an opportunity for the board and executive teams to set the tone from the top, engaging employees and indicating support for ESG integration into core strategic ambitions. Boards and CEOs can ensure that ESG risks and opportunities assessments are undertaken and considered in strategic planning, bringing ESG further up the agenda.
Key functions including IT and Finance need to be engaged on the ESG strategy to support group-wide implementation. Questions such as on how IT systems can be more energy efficient and how Finance can support the development of ESG metrics and measurement of ESG performance need to be considered.
4. Put your money where your mouth is
ESG commitments are often not accompanied by financial support, limiting the ability of teams to implement strategies. This is likely the result of ESG being traditionally siloed and not associated with financial performance. With growing recognition that financial performance is linked to ESG, FinTechs not addressing ESG risks or identifying opportunities will see performance negatively impacted. Investing in the development of products that drive positive social and environmental change will not only benefit FinTech reputations, but done right, can help them tap into new and profitable markets.
Read more about how Multitude is embedding ESG within its practices here.
Nontokozo will be exploring further topics on ESG practice in FinTech. Watch this space!
Disclaimer: The information provided in this article is intended for general informational purposes only. It is not intended to be, and should not be taken as, professional or financial advice.