Confidence is the vital role for services firms in sustainability

Our current systems cannot address sustainability. And too many of the most influential organizations use this excuse for not moving first and bringing their systems with them. Organizations either perceive a first-mover disadvantage, or they cannot get to a point of diligence and confidence in translating the goals and roadmaps we have for sustainability (see Exhibit 1 and our outline) as well as the commercial and moral urgency being increasingly proven (see our take on the glaring opportunity) into plans that work for them. Services firms can and must become that source of confidence, whether they’re financial services firms or any combination of consulting, technology, business process services, or engineering.

At The Economist’s recent Countdown to COP27 in London, the opportunity and responsibility for all services firms emerged—told through HSBC, the global financial services firm, and Seb Henbest, its group head of climate transition. HSBC is clear on three major fronts: internal, client-facing, and ecosystem sustainability, as well as prioritizing collaboration and transition over divestment.

Exhibit 1: Breaking down the global sustainability context from goals and roadmaps throughout systems and organizations

Source: HFS Research, 2022

Organizations still perceive a first-mover disadvantage

The commercial (and moral) case for sustainability is becoming clearer and clearer; this Oxford University research is a recent example. But most organizations, whether business or government, prefer to sit back and wait for a spoon-fed plan. They want regulation or first movers to provide that plan and a safety net. No one knows when regulation and a critical mass of public pressure will come—but they will. Heaven forbid it takes something so much more disastrous than anything we’ve seen before to trigger that change. Better to be ahead and part of the movement that sets the bar—be it kneejerk or gradual—rather than frantically reacting to catch up.

We’re staring at an increasing number of climate tipping points and seeing events predicted for 2050 happen in 2022. Clarity has emerged that policy and the public will not move at the speed and systems level we need. We will soon outline how this clarity means businesses hold the last levers that can avoid the worst climate breakdown and address the 17 UN Goals.

HSBC sees sustainability in alignment with our view of three critical spheres

Illustrated in Exhibit 2 are three spheres of influence a financial services firm—and any services firm—has over sustainability. HSBC is addressing its organizational sustainability, but more importantly, it has clarity in helping its clients transition and the influence it can have on the broader system. We need HSBC, and many other services firms, to succeed.

HSBC boils down its sustainability strategy to “optimism, activism and radical collaboration, and alignment.” It calls for organizations to speak honestly about where they’re starting and where they can’t make sustainability work for them. HSBC then aims to engage in the co-creation of roadmaps and solutions.

Disclosure risk is a fundamental problem. Few have the incentive to move first without being punished by the market—especially without regulation or commercial mandates. Dramatic regulation is needed but won’t emerge in time.

— Seb Henbest, Group head of climate transition, HSBC

Divesting doesn’t decarbonize

Banks have two levers to address the sustainability of their clients and investment portfolios: They can reallocate capital or help their clients transition. The former looks good, but the latter is the right approach in most cases. Plenty of investors are willing to hold assets not aligned with the global sustainability context. In the future, firms like HSBC will have to make difficult calls, but now, it will work with everyone it can. We could not agree more. We don’t have the luxury of being idealistic in solving sustainability.

The question should be: is a firm’s transition fast enough, and how do we help it accelerate? Not whether we engage or not.

— Seb Henbest, Group head of climate transition, HSBC

Financial services firms are increasingly confident in aligning with governments’ net-zero targets and the broader UN Goals. HSBC assesses the maturities of its clients and helps set goals and roadmaps and accelerate progress—like most, focusing on heavy-emitting sectors, including energy and utilities. HSBC is championing collaboration throughout its portfolio to further boost confidence. In 2023, HSBC will publish a full transition plan for its portfolio and strategy for policy engagement.

Banks can change the confidence conversation. HSBC is working with industry to mitigate first-mover disadvantage and capture first-mover advantage.

— Seb Henbest, Group head of climate transition, HSBC

Exhibit 2. Financial services firms hold three key spheres of influence over sustainability

Source: HFS Research, 2022

The biggest sustainability role for all types of services firms is getting clients to a point of confidence in moving at the speed we know we need

As well as addressing their internal sustainability as organizations, spheres two and three from Exhibit 2 apply to all services firms:

• Client engagement: Financial services firm JPMorgan Chase & Co (JPMC) developed its Climate Compass methodology in partnership with ERM, a global sustainability consultancy. JPMC, like HSBC and many peers, aims to “embed” sustainability in its portfolio through roadmapping, materiality assessments, and collaboration with key clients in critical industries. This is another example of systems influence that gives all services firms hope of re-plumbing global systems into alignment with sustainability. We see similar encouraging approaches in other large financial services firms like Coutts Bank (that we report on here) and both Santander and Citi, who feature in this past piece—all of which engage with their services partners.
• Systems influence: We cover the cases of ERM and JPMG, EY’s strategic work with the UN COP summits, and numerous examples in our market analysis of sustainability services. Services firms exist at the center of organizations’ operations and strategic transformations, as well as industries, governments, and whole systems. They have influence akin to financial services firms; they can push and help their clients and partners into alignment with sustainability.

The Bottom Line: There’s a glaring sustainability opportunity. But we need organizations to get over the commercial excuse. Services firms might just be the answer.

We need new levels of ambition and collaboration. In sustainability, too many still play not to lose. But the right people and organizations in the right rooms can help everyone win. They just need confidence and guidance—largely from their financial and broader services partners.