Demand for sustainable finance services outweighs supply

25 November 2021 Consultancy.uk

A new study has found the vast majority of consumers value sustainability in their financial service purchases. More than 60% are looking for more sustainable finance services and products – however over half also believe there are not enough choices on the market at present.

Sustainable finance is a trend the financial sector can no longer afford to dismiss. Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector, leading to more long-term investments in sustainable economic activities and projects.

For most consumers, the biggest impact they can have on sustainability is through their finances. Switching to a sustainability-focused pension, for example, is more than 21 times as effective at cutting carbon emissions than stopping flying, becoming a vegetarian and moving to a renewable energy provider combined. However, the financial services industry isn’t capitalising on this opportunity according to a new report from PA Consulting. There’s currently a lack of choice in sustainable financial products – one failing to take advantage of the fact that as consumers become more aware, and demand for more sustainable finance choices will increase.

Do you care about sustainability? + To what extent do you think financial institutions commit to a wider corporate purpose beyond optimising profit?

A 3,500-strong consumer study found that consumers more than 86% of financial services consumers believe sustainability is a top priority – rising to 87% in the UK and 88% in Norway. However, far fewer consumers think that financial institutions are meeting this demand, and are committed to a wider purpose beyond optimising profit.

Only 17% of those surveyed said they thought many financial institutions did well to contribute positively to ESG causes, or conducted themselves responsibly. This fell to 16% in the UK, and 15% in the Netherlands and Sweden.

Speaking on the findings, Mark Griep, Head of PA Consulting Netherlands, noted, "Consumers do not realise how big the impact of their financial choices can be on the climate. This impact is many times greater than other lifestyle changes, but it lacks knowledge and choice. Yet they want to make choices that matter, so service providers must act quickly and seize the opportunity, attract and retain conscious consumers and create a social take a responsible role.”

At the same time, while 64% believe that financial service providers play a critical role in the movement towards sustainable living and conscious consumption, 53% believe they are not sufficiently involved in the public debate. And beyond this, with 63% looking for more sustainable finance services and products, 53% agreed there was an urgent need for new, sustainable financial products.

Following Cop26, however, there does seem to be a growing appetite for sustainable investment among financial services firms, which can facilitate changes to accommodate these needs. In recent years, divestment from fossil fuel-based energy companies have picked up pace, with institutions managing $40 trillion committing to divest from fossil fuel companies. On top of this, in the lead up to the climate conference COP26, there were pledges to invest $130 trillion to reduce emissions in investment portfolios to zero – representing more than 40% of global financial assets under management.