ESG Criteria in Fintech: How They Impact Financial Services

Discover how senior executives and human resources help in advancing ESG criteria, as well as the important function that partnerships play in the mix

An eye behind a big green leaf. In this case, depicting the public and private organisations watching out for ESG and sustainable initiatives.

The Fintech industry is constantly evolving, and one of the most critical aspects of this evolution is how environmental, social, and governance (ESG) criteria impact financial services.

ESG considerations are becoming increasingly critical to businesses and consumers alike, who want to know that their money is being invested responsibly.

This article explores how ESG factors fit into the fintech industry and discusses their impact on financial services.

The significance of taking action before the government

Traditionally, governments are slow to act because their decisions impact millions of lives. Due to the flexibility to undertake more significant risks, private and publicly listed companies are nimble, quick, and agile.

This difference in speed has been one of the key reasons these sectors have successfully displaced traditional government services. The private sector always seeks to improve, while governments are often hampered by bureaucracy and red tape.

Furthermore, some pressing ESG issues like climate change cannot wait because the damage is already being done. The business sector has responded to this urgency by creating products and services that address climate change and other ESG issues.

“We’re not waiting for government or the rest of the world; we want to do this because we feel it’s right,” said Tim Wildash, CEO of Next Payments. “Fintech should be leading the way in lowering carbon emissions.”

The role of the Chief Financial Officer is critical to ESG issues

One of the most essential roles concerning ESG considerations is the Chief Financial Officer (CFO). The CFO ensures that a company’s financial interests align with its social and environmental responsibilities.

To do this, the CFO must understand how ESG criteria can impact a company’s bottom line. They must also be able to communicate effectively with other executive team members about ESG issues.

According to John Truzzolino, Director of Business Development at DFIN, “The CFO, working with the company’s board and senior management should assess reporting technology and readiness, internal controls over ESG and climate data, while providing, complete, consistent and accurate data for internal and external audit and assurance.”

The CFO is also responsible for ensuring that financial data is accurate and reliable, which can be challenging for ESG metrics.

Human resources also play a crucial role in ESG considerations

Another critical part of the ESG puzzle is human resources (HR). HR professionals are responsible for implementing and enforcing ethical standards within a company.

They also play a crucial role in recruiting and training employees committed to social and environmental responsibility.

“HR departments are uniquely positioned to drive ESG strategy – aligning corporate culture and human values to create a more sustainable workplace and ensure business success. When HR has a ‘seat at the ESG table,’ every function can be connected to the organization’s ESG strategy,” said Patrice Graves, Executive Vice President and CHRO at NCR Corporation.

“NCR’s ESG commitment to our customers, investors, Board and employees, centers around our IDEAS (inclusion, diversity, equity, allyship and storytelling) framework. With a focus on creating a culture that drives innovation, collaboration and growth, we felt it was important to begin with Inclusion. Our IDEAS initiative will help ensure transparency and showcase the clear, simple standards most important to NCR, but it also creates a framework that goes beyond the most common practices of counting the demographics of employees.”

There are many ways that HR can contribute to an ESG strategy, including:

  • Implementing and enforcing ethical standards
  • Recruiting and training employees who are committed to social and environmental responsibility
  • Developing policies that support sustainable practices
  • Supporting workplace diversity and inclusion

Partnerships are also critical to the ESG mix

To be more effective, fintech companies could integrate ESG considerations into all aspects of a company’s operations. This integration is easiest done through partnerships with other companies and organisations with the same values.

As the focus on ESG continues to grow, more and more companies are looking for partnerships to help them meet their ESG goals.

“A competitive and innovative financial services industry is critical to ensuring great customer outcomes, with opportunities for further innovation and to create new business models,” noted Ross McEwan, the CEO of National Australia Bank (NAB). “Collaboration between established financial services providers, big tech and fintechs has never been more important as we respond to rapidly changing customer needs and expectations.”

The bottom line

Whether it’s executives in the company, partnerships, or something else driving change, it’s clear that ESG is becoming an increasingly important part of the financial services industry.

“There’s a shift happening; businesses are finally starting to understand that, at the end of the day, it’s a way to attract investors. So it needs to be considered by companies,” added Renee Minchin, Australian Virtual CFO at 2account. “It’s a space that is going to grow. As more people talk about it, the wider the impact. ESG is going to become the norm eventually.”

In conclusion, ESG considerations are no longer just a nice-to-have; they’re essential for companies looking to stay competitive and responsible today. The question is; are fintech companies ready to embrace the ESG criteria and even lead the way?