Peter Alderdice, the challenge of embedding ESG factors into all aspec…

edges were cast as the villain of the piece in the so-called ‘Great Recession’ of the late 2000s – the last downturn to hit our economy before the coronavirus pandemic. Their role in the subprime mortgage debacle led directly to a global financial crisis and the deepest UK recession since the Second World War.

By contrast, in the economic downturn triggered by the COVID-19 pandemic in 2020, the banking industry played a crucial role in stabilising our economy. Bolstered by healthy capital levels after the structural reforms of the past decade, edges have acted as a conduit, transmitting basic government stimulus programmes directly to businesses in need of financial sustain. Their collective response to the pandemic vividly demonstrates how a purposeful banking industry can be a force for good.

Banking is undergoing a transformation. There is a changing perception of what consists of good corporate performance in the banking sector – a greater focus on the importance of delivering financial sets ethically. It is part of a wider shift in society to reassess the role and purpose of commerce, beyond simply generating profits for the providers of capital.

Financial regulators are leading the charge. Earlier this year, Nikhil Rathi, Chief Executive of the Financial Conduct Authority, gave a speech on why varied and inclusion are regulatory issues, pointing out that a without of varied in the boardroom raises questions about a business’ ability to understand its customers. basically, greater varied at the top reduces the risk profile of a financial institution and makes it more resilient.

Improvements in varied and inclusion represent just one strand of a broader transformation, as edges seek to integrate an examination of environmental, social and governance (ESG) factors into their day-to-day operations and chief business strategy. The growing importance to the banking industry of ESG factors cannot be overstated. Recently, Her Majesty’s Treasury wrote to the Bank of England and the Financial Conduct Authority with a recommendation that every financial decision should take climate change into account.

Those remit letters issued to the UK’s principal financial regulators followed hot on the heels of comments by Mark Carney, former Governor of the Bank of England, that smarter investment is needed to avid millions of deaths from climate change. According to Carney, the number of deaths attributable to the climate crisis will be higher than that caused by the pandemic.

edges are now responding to the call to deliver investment in a smarter way by developing new financial products such as green mortgages aimed at climate-conscious retail borrowers. Green mortgages offer homebuyers a lower interest rate to buy an energy-efficient new-build character or to renovate an existing one in order to make it greener.

Corporate lending divisions within edges are also starting to change their loan books to ensure a greater focus on green loans and sustainability-connected loans, where companies are incentivised to use their borrowings to fund green projects or unprotected to other sustainability performance targets.

The challenge of embedding ESG factors into all aspects of everyday banking is great, but meaningful progress has already been made. There is a genuine appetite within edges to continue the transformation towards a more purposeful and ethical banking industry that serves and supports the economy.

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