Sustainable ambition vs. action in the financial services sector

Many accounting firms, and other companies within the industry, are making a conscious effort to advertise their ‘green’ agenda and outlook. Accountancy Today spoke with sustainability expert Steve Wilhite to breakdown how far the sector has come in road to net zero emissions

While announcing the government’s budget for 2021, Rishi Sunak confirmed the government has “a real commitment to green growth” and “a real commitment to create jobs where people are”. The chancellor went on to outline plans for an “investment-led recovery” in which sustainable businesses were to play a key role.

In response to the government’s much-anticipated budget for this year, the Institute of Chartered Accountants in England and Wales (ICAEW) lamented its lack of “substantive green measures”. Notably, the trade body took issue with the fuel duty freeze and failure to end VAT on eco-friendly goods, such as insulation and solar panels.

Richard Spencer, a director for the ICAEW, called the small references to climate action in the chancellor’s speech a “sideshow”. “The laudable ambition for a fair recovery and a green Industrial Revolution we have heard a lot about from the government didn’t translate into the hoped-for battery of actions in this budget,’’ he said.

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The gulf between sustainability ambitions and necessary action has been hotly debated within the public and private sectors in recent years. While governments often pay lip service towards green initiatives, the financial services industry has been able to blaze its own trail in achieving a net zero future.

Not all the government’s announcements were met with disappointment, however. PwC praised the announcement of funding for the UK’s Infrastructure Bank. Richard Abadie, the firm’s global leader for capital projects and infrastructure, referred to the £12bn boost as a “significant uplift” on the £3bn already reserved for the Green Infrastructure Bank.

“The chancellor referred to the £12bn being used on £40bn of projects,” he said. “This significant crowding in of private capital should be welcomed although for context, we estimate that we need to spend £40bn a year for the next decade to reach the UK’s Net Zero target.”

However, many experts in sustainability do not believe governments and businesses should be competing on climate action. Steve Wilhite, senior VP of Energy and Sustainability Services for Schneider Electric, believes both sectors must work in tandem.

“I think the public-private partnership is critical to the solution to the answer,” he explains. “Being in the US (Wilhite is based in Kentucky), we’ve seen far more aggressive action coming from the private sector, just from where we sit politically. Take the case in point of us rejoining the Paris Agreement.

“The market was moving before our government decided to move. We exist in a global economy that’s had a nationalistic emphasis in the last few years, but that hasn’t reduced the need for global companies that have a footprint everywhere to say how do we address the world’s footprint.”

Wilhite’s role involves providing resource management and sustainability consulting services for businesses across a multitude of industries, including retail, manufacturing and financial services. His clients range from PE firms to investment groups, such as the Blackstone Group.

“I think the financial services sector overall has really accelerated this change to achieving net zero,” Wilhite says. “There has been a pressure coming from the investment community on either their portfolio companies or their investments.

“I think when you’re in the financial services space, the integrity of reporting becomes pretty critical. Companies start by asking what success looks like, how do they set the targets, what actions do they take and then ask how do they ensure the integrity of their reporting.”

Change in corporate culture has been a catalyst for change, according to Wilhite. “What you see is many stakeholders getting engaged in organisations around this topic,” he explains. “If I dial back maybe seven to eight years ago in this space, there seemed to be more of the groundswell coming from beneath a company going up regarding it.

“The creation of the chief sustainability officer position was relatively new. It was pushing against the financial side of the company, which would be asking where the money and ROI was in regards to sustainability.

“Companies had these competing stakeholders. We have seen a fundamental shift in a broad set of companies, where there are stakeholders in all directions. It’s not just the CSO pushing this and the CFO pushing that. There’s risk associated with it and companies are asking how to mitigate the financial risk associated with climate change.”

Wilhite describes the push and pull in terms of rowing a boat. “If you get a lot of oars in the water and they’re going in all kinds of different directions, the boats will just spin and not go anywhere. What we’ve seen is more of the oars rolling in sync.”

The role of the accountant has changed in covering this issue. “There’s a bit of a shift in the role of accountants, to not just focus on accounting around the financial side of the business, but making sure there is a high integrity of accounting around claims and the targets that people are setting.

Financial reporting is key for Wilhite. No financial firm can promote their green footprint without being honest. Businesses can only change their behaviour when they have quality, trusted information to work from and accountants provide said information.

“Even with our own company issuing green bonds, and having KPIs tied to those green bonds, we have to be very careful about how we account and report that,” explains Wilhite.

Ultimately, Wilhite believes the sector’s attitude and success in reaching net zero will come from being able to “walk the talk”. “We’ve all probably read and seen companies in financial services are preaching it (sustainability) and pushing it on their portfolio companies,” he said.

“But they also need to be consistent in what they’re doing themselves.”

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