Becky Willan, CEO and Co-Founder of Given
The Challenge
Banks and businesses in the financial services industry are coming under greater scrutiny for not only how they invest their money but, increasingly, who they invest it with.
In June, Barclays came under attack – quite literally, with 20 branches vandalised across the UK – over accusations of links to defence companies supplying Israel. This led to the suspension of their sponsorship of all Live Nation music festivals, and prompted the bank’s chief executive, CS Venkatakrishnan, to write an opinion piece in the Guardian about what he called “a campaign of disinformation against Barclays”.
Lloyds Banking Group is another high profile example after its AGM was disrupted by pro-Palestinian and climate activists in May. Two years ago the bank committed to end direct funding of new oil and gas exploration projects, but for some this does not go far enough, with the protesters demanding Lloyds divest from all fossil fuel and arms companies.
This comes amid growing concerns about the lack of sufficient capital to fund the transition from “grey to green”. As we have seen, financing projects from oil and gas companies, even if there’s a clear decarbonisation agenda, now comes with increasing reputational risk for banks. And yet we can’t achieve a low carbon economy without system-wide transformation.
The banking industry operates in a challenging space when it comes to navigating purpose, but do these institutions deserve the level of criticism we’re seeing in the media?
What we do know is that businesses operating in the sector need to have more clarity and focus around what their purpose is.
Our recent Purpose Gap Report revealed that over a quarter of respondents in the financial services industry (26%) are actively thinking about leaving their current job role due to their company’s failure to deliver on corporate purpose promises. This compares to a 13% average across all sectors looked at in the report. At twice the rate of dissatisfied employees, financial services appears to be lagging behind other industries.
Additionally, over half (56%) of consumers say it is important to them that their bank acts sustainably and/or ethically. It is therefore essential for businesses in the financial services industry to consider carefully their purpose and corporate values and ensure they align with the causes their stakeholders are passionate about.
Making this change, while important to the longevity of the institution, can be complicated to implement and investment decisions are not always clear-cut.
According to the same report, additional blockers cited by those in finance wishing to make positive change were among the following:
- It is too costly
- There is a lack of understanding across the business around potential positive impact
- It is not a business priority
- There is an overall lack of commitment from leadership
- There is a lack of integration of purpose within employees’ roles
A year on from the fallout of the Coutts / Nigel Farage scandal, which saw Dame Alison Rose step down from her position as NatWest’s chief executive, some are fearful of the risks associated with moving away from business as usual.
Widely reported at the time was Coutt’s internal memo that the Reform UK MP’s views were “at odds with our position as an inclusive organisation.” Whether this was about principles, or politics, the scandal brought purpose into the spotlight.
Missteps can happen in any walk of business, but we need to remember that purpose is about good business and strategic focus, not taking a moral high ground.
Adopting a purpose-driven business approach is also not in lieu of profitability – indeed it is essential. Profit without purpose is meaningless and purpose without profit is unsustainable.
The significance of profitability with purpose
The business case for purpose is now truly evident. Financial services organisations that contribute positively to a sustainable and inclusive future are simultaneously driving their own success.
A report by Deloitte last year found that most consumers agreed that a business’s commitment to sustainability affects their level of trust in the company. The study also suggests around a quarter of shoppers are willing to pay more for products that are more sustainable or committed to more ethical practices.
With investors, customers, and wider society increasingly demanding ethical, sustainable and positive actions from businesses, purpose-driven companies not only attract a wider, more impact-conscious group of stakeholders, but also see improved performance and greater resilience.
An Interbrand study found that purposeful brands, set on improving our quality of life, outperform the stock market by 120%.
Additionally, purpose-led brands attract and retain the best and most passionate employees, with EY reporting 84% of staff found it important to work for an organisation that positively impacts society.
A better way to bank
Nationwide is an example of a financial services model flourishing while helping change the world for the better. The building society has experienced year-on-year growth in the number of current accounts held since 2011, with a market share of 10.4% last year.
Boasting over 17 million customers, and a balance sheet of £272 billion, the institution celebrated its £2 billion profits earlier this year by offering a £100 profit share to each of its members under the Fairer Share initiative.
Additionally, the institution also donates 1% of pre-tax profits to charity, as part of its Fairer Futures initiative – a project developed alongside us at Given.
Led by its social purpose, Nationwide donates to partners working to combat homelessness; families living in poverty; and those suffering with dementia. Last year alone, charitable donations came to £15.5 million.
Asking the right questions
In the highly regulated financial services sector, boards of directors play a critical role in ensuring compliance with environmental, social, and governance (ESG) standards.
This extends beyond simple financial oversight to include the integration of ESG principles into the company’s goals and risk management frameworks, along with promoting ethical conduct and sustainability practices.
Board members will not find their questions answered by an aspirational turn of phrase about an organisation’s role in the world. Instead, purpose must be understood as a complete management strategy that is embedded into every part of an organisation. The right questions go beyond the ‘why’ to consider the ‘what’ and the ‘how’ too.
Businesses must create a space for learning, reflection and the idea that they can do better. Most boards regularly evaluate their effectiveness in governing a business. Not many look at this through the lens of purpose.
An annual “purpose stock-take” could ultimately be a valuable exercise ensuring that purpose really is embedded into the company culture and governance structure. It could involve asking the following five big questions:
- Are we satisfied with how much of our balance sheet is aligned with our purpose today?
- What are the biggest opportunities our purpose could unlock for our business?
- Would our different stakeholders recognise our purpose as more than simply words on a page?
- Are we clear on our “red lines” – the purpose promises we won’t break in pursuit of profit?
- When was the last time we challenged a decision on the grounds of our purpose?
Final Thoughts
Financial institutions are now being scrutinised more than ever, but there is more than just reputational risk at stake. There is one final question those in the sector should ask themselves: what risks are we exposed to by not clearly defining and living our purpose?
The repercussions here could be incredibly damaging to the overall health of a business: falling foul of regulation; reduced employee morale and productivity; lack of consumer and investor trust; lack of long-term growth and resilience.
This can be avoided if businesses take the time to define and embed their purpose and values, using them as a management approach to profitably solve problems of people and the planet.
Adopting a purpose-driven approach is a strategy that may seem daunting at first, but asking the right questions and implementing an open and collaborative approach is a step in the right direction.
