A sustainable finance strategy for the bank of 2030

29 April, 2020Paul Fisher

Looking for a climate change strategy for your bank or financial institution? Paul Fisher looks at what makes a good strategy and how to start creating one.

Plant shoot growing on a pile of gold coinsWhat is a strategy? In my experience, many ‘strategies’ are just a ‘to-do’ list or, somewhat better, an ‘action plan’. 

Of course, the problem with any plan of campaign, however sophisticated, is that it doesn’t survive the first encounter with the enemy. Stuff happens which throws the best plans off course. 

For me, the most useful high-level strategy is something that, not only sets out objectives but describes an approach – a way of dealing with issues which helps one make choices when the unexpected happens. 

What makes a good strategy?

During my time at the Prudential Regulation Authority (PRA) its strategy was “to deliver a resilient financial sector by seeking:

  • an appropriate quantity and quality of capital
  • effective risk management
  • robust business models
  • and sound governance including clear accountability of firms’ management.”

And in delivering the strategy to be “forward-looking and judgement-based, proportionate in its actions, and efficient in its allocation of resources”.

The latter sentence was especially useful. It may sound like a ‘motherhood and apple pie’ approach but it worked for me. When sitting round the policy table, this strategy helped us make decisions.

To understand how, just consider that the opposite strategy could have been “reactive, rules-based, and to make rules which apply equally to all regardless of firm size or the importance of the issue”.

That approach is not uncommon amongst regulators that take a legalistic approach. So, the PRA strategy was refreshing and made a real difference.

A key aspect of a good strategy is that it should help all those working with you and for you to know and follow it.

It is no good having a strategy extending to a sheet of A4 as that’s too much for most people to carry in their heads. A single sentence is definitely advantageous for a high-level, company-wide strategy.

How does this connect with climate change?

Well, the G20 Task Force on Climate-Related Financial Disclosures recommended that all firms make disclosures about their approach to climate change in the areas of:

  • governance
  • strategy
  • risk management
  • and targets and metrics.

Up until recently, the ‘strategy’ part has received somewhat less attention than the others.

So, what could we suggest for a corporate climate-change strategy, perhaps for a commercial bank?  

What about “to align our business model with the transition to a lower carbon economy:

  • by being forward-looking, pro-active and creative in meeting the needs of our clients
  • by showing leadership whilst remaining collaborative
  • and in doing so, ensure that we maximise the long-term, sustainable value of the company.”

Sound obvious?

But it compares with some banks that up to now have been reactive, lacking in imagination, followers – of regulators or customers – and siloed. Such a bank risks losing out to others who have forged ahead.

What actions should follow such a strategy?

Although it doesn’t provide a single sentence version, relevant strategic actions have been reviewed and documented by a working group of banks put together by the Banking Environment Initiative (BEI), of which I have the honour of being vice-chair.

The final report was written by the University of Cambridge Institute for Sustainability Leadership (CISL) which convenes the BEI. The Report, Bank 2030, Accelerating the Transition to a Low Carbon Economy, is available online free of charge.

It describes a process by which banks transition from business as usual towards a state in which a low-carbon strategy is ‘institutionalised’.

Key aspects of the recommendations include to:

  • ‘lean in’ to change by having an ‘active mindset’
  • and being creative in producing financial products that align with the lower carbon future – without waiting for customers to lead demand.

The very existence of the Bank 2030 Report demonstrates how banks can be leaders whilst working together with customers, fellow financial institutions and other knowledge groups.

If you are looking for a climate-change strategy, it’s a good place to start.

Paul FisherDr Paul Fisher is a Fellow at the Cambridge Institute for Sustainability Leadership (CISL). He was previously a senior official and macroeconomist at the Bank of England for 26 years, including five years as a member of the Monetary Policy Committee and Executive Director for Markets and two years as Deputy Head of the PRA. He is a member of the European Commission’s High Level Experts Group on Sustainable Finance and was a member of the UK Green Finance Task Force. He holds a portfolio of other roles in finance and academia.

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