Financial literacy is crucial to young people's future. But how financially literate are young people today, and how can they prepare for the economic challenges of tomorrow? To answer these questions, we interviewed Jessica Thyrion, advisor at the ABBL Foundation for Financial Education. In this article, she shares her expertise on the importance of financial education, the specific challenges facing young people, and the initiatives in place to help them navigate the complex world of finance. Find out how the ABBL Foundation is working to improve young people's financial literacy and prepare them to make informed and responsible decisions.
The ESG journey and how banks can help change the world.
In a rapidly changing world, the need for businesses to prioritise environmental, social and governance (ESG) issues has become increasingly apparent. As consumers demand greater transparency and accountability, banks have a unique opportunity to contribute to a positive change. We spoke to Julie Batsch, Audit Partner, Banking and Capital Markets Leader at PwC Luxembourg, Jörg Ackermann, Partner, Banking Advisory Leader at PwC Luxembourg and Frédéric Vonner, Advisory Partner, Sustainable Finance and Sustainability Leader at PwC Luxembourg who provided insight and five useful tips for our readers.
Banks are facing increasing pressure to meet evolving stakeholder demands regarding environmental, social, and governance (ESG) issues. New regulations, such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, require greater transparency and disclosure of ESG-related data. Investors are also scrutinising the impact of their investment decisions on climate and society.
SFDR mandates that financial institutions make certain sustainability information on their financial products publicly available and comparable. Investors can factor this information into their investment decisions and track the ESG impact of their portfolio. The EU Taxonomy serves as a standardised definition to measure ESG impact and will become the new gold standard in the regulatory ESG framework.
Banks also have reporting obligations at the corporate entity level, as outlined in the Corporate Sustainability Reporting Directive (CSRD). They must perform a double materiality assessment to understand the impact of sustainability matters on both their business and on sustainability as a whole. The CSRD includes measures such as the green asset ratio, which measures the percentage of lending to green assets in a bank's overall portfolio. Banks will need to disclose significant new data to the public to increase transparency and meet stakeholder expectations on ESG matters.
In addition to meeting regulatory requirements, banks play a crucial role in financing the decarbonization and green transition. They need to understand their clients' businesses and provide transformation advice alongside financing. Banks also need to assess the climate risk their clients face, as they may be expected to provide some of the funding to address these challenges. Furthermore, banks are encouraged to contribute to societal objectives, such as supporting households with low income and promoting social development.
Overall, banks are undergoing a transformation in response to ESG considerations. The ESG motivation is twofold: banks recognise the need for a sustainable planet and understand that embedding ESG is essential for their industry's survival. Banks need to be actively involved in the entire value chain, not just as finance providers, but also as educators and advisors to their clients. The focus is not only on environmental aspects but also on social and governance matters. Banks can play a significant role in driving positive change by supporting the transition to a greener economy and addressing wider goals outlined in the UN sustainable development goals.
I think everyone cares about ESG, just on different levels with varying priorities. Retail customers, for example, who seek to finance a car, must choose between an electric vehicle or a combustion engine. Corporates, on the other hand, see banks as their partners. SMEs need someone they can trust to help them achieve their ESG transition.
Private banking is a slightly different sector. Here, the ESG interest often depends on where the wealth comes from. A person that built a company from scratch differs very much from someone who was born into wealth or inherited. This type of client gets more involved in charities.
We are witnessing a large transfer of wealth from the elderly to the younger generations. The newer generations care a lot about ESG and they want to invest in a way that is good for society. We noted in our 2021 PwC Banking Trends and Figures survey that high-net worth individuals are driving the ESG transformation of portfolios.
Another significant point to make is that banks are sitting on a pile of data. Did you know that from just four credit card transactions, someone can be identified to more than 90%? And most people are using credit cards. So, when you buy a pair of jeans or an airport ticket there could be a prompt that tells you how much Co2 you are about to generate. If we were getting this kind of information, we would redirect our spendings by making more sustainable choices.
Looking back in history, return on investment was the first relevant decision factor for clients, before risk came in as a second category. However, going forward, the future is going to be about risk, return and impact. And if you look at the different client segments, the very high net worth clients are the ones driving the change. Why? Because first they want to do good for mankind and they have the money to do so. But secondly, they want to invest considering ESG because they know that non-sustainable and non-compliant investments will lose them money in the long term. With more reliable ESG reporting to be provided by the bank on client’s investments will help them to assess the impact their investments will have on the different ESG dimensions.
I believe that in 10-15 years ESG will be fully integrated and we will not even use the term ESG. We still have mounting geopolitical tensions; we are battling high inflation and who knows what else is around the corner. This means that many bank clients first must worry about having enough money at the end of the month. When this happens, priorities can get shuffled. So, to me, ESG investing is likely to be volatile in the shorter term. But with a positive climb in the longer term. The reality is there are these tensions occurring between short-term investing and long-term. It is a journey and we all must change.
We are on our way to + 3 degrees in Luxembourg. This translates into ten months of drought per year in 2100. Imagine ten months with no water. I believe it is plain to see that we must change now. But the real pressure will come when people start to realise how urgent the situation has become. And that will end up being a stronger catalyst than regulatory pressure.
Transparency and accountability is driven by the CSRD (Corporate Sustainability Reporting Directive) which obligates banks to define their goals for which they will be measured against. Banks must understand ESG data and help their customers understand what is being reported.
In times of multiple crises, politicians must not lose sight of this important topic and, more importantly, empower the people that are aiming ambitious ESG goals. They must set the right incentives and use funding wisely.
You could look at this from a global perspective, and then I would list a variety of topics:
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Water is essential, on this topic we have the problems of both scarcity/drought and flooding with the risks they bring;
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The growing awareness on the topic of ESG is a topic in itself;
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Inflation;
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Budget problems;
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Geopolitical tensions, and
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Social media and its ability to distract people from the true ESG (climate change) issues and urgent agenda (to name a few).
5 useful tips
for consumers who want to choose purpose-driven companies that take ESG seriously:
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Choose companies that have committed to a green future and a defined transformation path.
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Make sure you do your own research based on scientific facts – do not trust what is being said on social media.
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Think about what is close to your heart and then make your commitments to yourselves.
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See the big picture but focus on small actions so you do not become discouraged or fatalistic.
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Be patient, change takes time.
About the blog:
There is an urgent need for rapid transition to global sustainability. Business and industry have enormous social and environmental impacts. "Why does it matter?" is a bi-monthly blog that aims to elucidate this important topic through the eyes of our experts.
Don't miss out our experts' practical tips for your daily life and be part of the positive change.