The financial sector must take ESG initiative: Help clients transition plan

Neither policy nor business is meeting the climate and broader sustainability emergency. Therefore, the banking, financial services, and insurance sector (BFSI) must step up. BFSI’s opportunity lies in connecting its ecosystem of stakeholders, especially in helping its clients build and execute transition plans focused on shared outcomes. BFSI’s spheres of influence extend far beyond their own internal sustainability as organizations (see Exhibit 1). Despite turbulence, the long-term direction of sustainability hasn’t changed, and BFSI knows it. The sector has the long-term mandate to lead where politicians and business leaders have not.

Transition plan mandates aligned to the 17 UN Sustainable Development Goals (SDGs) should be in law—or at the very least, requirements to decarbonize and tackle sustainability’s interconnected environmental, social, and economic spectrum. The UK took the lead in 2021 by setting up the Transition Plan Taskforce (TPT), which recently produced its final report. 2026 was intended to be the year disclosing transition plans for large and public companies was required. That regulation was never followed through. Switzerland recently declared its intention to do something similar. But it’s too little too late.

Exhibit 1: BFSI must focus on its most material spheres of influence—customers, partners, and systems change—to maximize its positive impact on sustainability

Source: HFS Research, 2025

There is a change in ESG and sustainability language—it’s mostly rhetoric—but BFSI can’t afford to fall for the perceived “greenlash”

Most large banks claim their intent isn’t changing despite scrubbing rhetoric and exiting sustainable finance alliances (ESG Today covers many instances here). But as with firms washing diversity, equity, and inclusion (DEI) from their top-line narratives, we find it difficult to see—at the VERY least—that there won’t be a cultural change and a talent problem as the people and organizations who still want to do something about sustainability with whatever levers they have, find each other and continue to move. A recent resignation—for reasons so far unconfirmed—of a major bank’s chief sustainability officer is perhaps a sign of things to come.

As we cover in this report, sustainability will continue to be a differentiator in 2025. We also analyze in a separate report how the anti-ESG “greenlash” is a mist and more of a “greenhush.”

BFSI should push regulators to lead on transition planning regulation and enforcement

In clear, outcome-focused partnerships, the finance sector must work closely with policymakers, cross-sector businesses, and civil society. Leadership in global settings such as COP29, the 2024 UN climate summit— supposedly “the finance COP”—has been dismal. Even Exxon Mobil’s boss wants clarity on the future sustainability roadmap. However, the lack of positive lobbying at COP29 was deafening. Fossil fuel lobbyists showed up in force, as this report covered.

While regulation is not where it needs to be, the TPT report illustrates standards abounding for transition plans that impact the BFSI sector:

• The International Organization for Standardization (ISO) is working on producing a global standard on net-zero across the economy’s sectors and for financial institutions to develop transition plans.
• The Financial Stability Board (FSB) is analyzing the relevance of transition plans for financial and non-financial firms for stability.
• The International Association of Insurance Supervisors (IAIS) is examining transition planning for climate risk in insurance. It aims to promote “a globally consistent supervisory approach to climate-related risks.”
• The European Financial Reporting Advisory Group (EFRAG), Carbon Disclosure Project (CDP), International Financial Reporting Standards (IFRS) Foundation, and the International Sustainability Standards Board (ISSB) “are working to harmonize disclosure frameworks for easier, interoperable climate-related reporting” to establish standards for mandated and voluntary reporting.

Beyond the TPT report, the EU, based on reports by its major financial regulatory agencies, is calling for financial institutions to improve their stress testing of risks related to the need to adapt to and mitigate the climate crisis.

2025 also will be the year of the CSRD, the EU’s Corporate Sustainability Reporting Directive… it must be more, as we call for here.

Voluntary standards are raising the bar for transition planning

Beyond legally required reporting such as CSRD, voluntary disclosure platforms such as the CDP are increasingly moving from data disclosure of the here and now to assessing companies on their roadmaps to achieve sustainability goals. BFSI must drive these voluntary standards to become law.

Outcomes-based collaboration is essential to bridge long- and short-term time horizons

Despite a dominant AI narrative in most 2024 business conversations, collaboration always stands out in stories of positive outcomes. This report outlines several examples.

BFSI must connect its ecosystems across multiple time horizons and outcomes—aligning the long- and short-term motivations of commercial banks, investment banks, insurers, asset managers, VCs, private capital firms, and others.

BFSI can also help align clients’ finance, sustainability, technology, and broader leadership teams to weave transition plans throughout those organizations and wider ecosystems.

BFSI must also help align its own direct ecosystem. Too often, there are disconnects between the sources of sustainable finance and those with development-ready projects or small-medium enterprises seen as too risky. Sometimes, only a lack of confidence or relationship exists between realizing the financial, environmental, and social opportunities of the energy transition, for example, especially when considering investing in the global south, as we’ve seen first-hand at multiple COP summits. BFSI must be the sector that proactively overcomes this.

Digital, data, and the emerging technology suite also represent a significant opportunity for sustainable finance and insurance

Improvements to artificial intelligence, including GenAI, quantum computing, and all-around analytical or data developments, will not only help climate science predict the coming risk but also help actuaries and the entire BSFI industry, which is attempting to integrate that science into insurance and other financial products.

Insurance payouts are rising due to more intense and/or frequent natural disasters, and those impacts are becoming more unpredictable and uninsurable. Therefore, every additional piece of helpful technology is essential. In future reports, HFS Research will dissect the technology-BFSI-ESG intersection.

This report also calls for AI to aim for positive sustainability outcomes, and this research examines the dynamics of ESG technology platforms.

The Bottom Line: The long-term mission, opportunity, and risk haven’t changed. BFSI knows that.

BFSI clients include businesses across sectors. The BFSI sector may be the only one with a (mostly) long-term view beyond what the majority of quarterly-focused firms (and one-term policymakers) can manage.

The BFSI industry must move forward with a core purpose of protecting and empowering people’s lives and livelihoods. It must work throughout business, policy, and civil society ecosystems toward shared sustainable outcomes.