UNGC_Accenture_Banking (Sustainable banking).pdf

7/28/2019 UNGC_Accenture_Banking (Sustainable banking).pdf

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UN Global Compact-Accenture CEO Study

Towards a New Era of

Sustainability in theBanking Industry


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There has perhaps never been a better moment to contributeto the debate about how, as we look to economic recoveryfollowing one of the most tumultuous periods in our history, wecan start to rebuild the global economy in a sustainable way.

The timeliness of this study is matched by its breadth. Nearly

1,000 CEOs, business leaders, members of civil society andacademic experts have contributed to what is the largestCEO survey on sustainability of its kind to date. The globalgeographic and industry coverage of contributing CEOs furtherprovided unique insights into the challenges and opportunitiesof the coming decade.

It is a decade that, CEOs believe, could usher in a new era wheresustainability issues are fully integrated into all elements ofbusiness and market forces are truly aligned with sustainabilityoutcomes. The survey and conversations conducted as partof this landmark study make clear that todays CEOs are moreconvinced than ever of the need to embed environmental, socialand corporate governance issues within core business. But theyare also convinced that good performance on sustainabilityamounts to good business overall: the imperative to act hasshifted from a moral to a business case. Furthermore, executivessee significant progress in executing their plans to integratesustainability.

Many challenges must be faced, however, before marketforces can truly be aligned with sustainable development. Forexample, CEOs see that engaging with the investor communityon new terms, improving the provision of education and skills,and measuring a new concept of value within organizationsare critical conditions for change. Yet we also see a strongdetermination on the part of CEOs to take the necessary actionsto meet these challenges.

We hope that this first-hand voice of Global Compact CEOs willhelp to shape the conversation on corporate sustainability overthe coming years, and we believe that we can, together, setout a compelling collective vision for the future of the globaleconomy. As we look ahead, we recognize the scale of thechallenges that we facebut also recognize the huge potentialof the Global Compact as a unique platform for engaging theeconomys most powerful force. If that potential is unleashed,we can build the necessary foundations of a new era of

sustainability.

Georg KellExecutive DirectorUN Global Compact

Bruno BerthonGlobal Managing DirectorAccenture SustainabilityServices

Foreword ............................................................................................. 02

Executive summary ......................................................................... 04

Part OneBackground and Industry Context .............................................. 10

Part TwoSustainability and Banking: State of the Industry ........................16

Part ThreeOvercoming sustainability challenges on the road to anew era .............................................................................................. 20

Part FourPioneers of the New Era ................................................................ 26

Part FiveAccelerating the journey to the new era of sustainability ......... 30

Toward a new era of sustainability:Leading the way ............................................................................... 34

ForewordContents


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CEOs around the world are starting to see the shape ofa new era of sustainability coming into view. In the faceof rising global competition, technological change andthe most serious economic downturn in nearly a century,corporate commitment to the principles of sustainabilityremains strong throughout the world: 93 percent of CEOs seesustainability as important to their companys future success.

This is one of the significant findings of a new study fromthe United Nations Global Compact and Accenture, ANew Era of Sustainability. The reportbased on a surveyof 766 United Nations Global Compact (UNGC) memberCEOs, in-depth interviews with an additional 50 memberCEOs and further interviews with senior business andcivil society leadersrepresents the largest such studyof CEOs ever conducted on the topic of sustainability.The study included a sample of more than forty majorbanking firms around the world, and interviews with CEOsat leading financial institutions including Calvert Group,HSBC, Grupo Santander, Storebrand, UniCredit and UBS.

Although it is clear that CEOs believe strongly in theimportance of sustainability, and are committed tointegrating environmental, social and governanceissues into their day-to-day operations, they see manychallenges ahead in truly embedding sustainability intocore business. Most immediately, CEOs see challengesinternally in managing competing strategic priorities andthe complexities of integration. Many leading companiesbelieve that sustainability issues are already integrated intotheir strategic thinking, but face significant challenges inembedding these issues into their day-to-day operations,especially throughout their supply chains and subsidiaries.

Beyond their individual companies, too, CEOs believe thatmuch will be required to shape a landscape conduciveto more sustainable business. It is readily apparent thatuncertainties regarding consumer demand, investor interestin sustainability and future government regulation must beclarified, and that a new debate will be required to articulate

new concepts of value and make the case for the benefitsthat business can bring in meeting societal challenges.

As we look towards the next decade, and new waves ofgrowth, it is clear that CEOs are beginning to recognise thescale of the challenge they face in aligning sustainabilitywith core business, and in creating the environmentnecessary for sustainable business to prosper. Theyalso recognise, however, that this transition will dependon the economys most powerful force, businessandthat, with immediate and sustained action, individualcompanies can play a critical role in building thefoundations of a more sustainable economy. Nowhere are

the opportunities greater than in the banking industry,and we hope that this is a timely and useful contributionto advancing sustainability in the sector, with a uniqueinsight in the views of CEOs and global leaders on whatit will take to reach a new era of sustainability.

Noel GordonGlobal ManagingDirector, Banking

Peter LacyUNGC-Accenture CEOStudy LeadManaging Director,Sustainability Services EALA

IntroductionNoel Gordon and PeterLacy


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The sustainability landscape is

changingSince the last study in 2007, we have witnessed a

fundamental change in CEOs views on sustainability.Business leaders worldwide, particularly those in the bankingsector, now see sustainability as central to their business: 98percent of the banking CEOs we surveyed, and 93 percentof CEOs overall, believe that sustainability issues will beimportant to the future success of their business.

As CEOs perceive ever-greater links between businessperformance and their sustainability capabilities, it is clearthat the environmental, social and governance issues at theheart of a sustainability strategy are featuring higher on theexecutive agenda. In our conversations with CEOs, we haveseen how sustainability is increasingly seen as an important

element in how many companies respond to core strategicchallenges.

After the storm: Rebuilding trustDemonstrating a visible and authentic commitment tosustainability is especially important to CEOs because it ispart of an urgent need to regain and build trust from thepublic and other key stakeholders, such as consumers andgovernmentstrust that was shaken by the recent globalfinancial crisis.

One leading executive articulated the challenge succinctly:Trust has been badly damaged by the events of the financialcrisis, and rebuilding trust cannot be done overnight. Amongall CEOs surveyed, strengthening brand, trust and reputation

is the strongest motivator for taking action on sustainabilityissues, identified by 76 percent of banking executives and 72percent of CEOs overall.

However, CEOs often assume that their own company ismore respected and trusted than their industry in general.For example, 66 percent of banking executives believe theirindustry is trusted, but 73 percent believe their own companyis trusted. This leads to a real concern that executives mayunderestimate the extent of public mistrust in business.

The drivers and approaches to

sustainability are changingBanking CEOs identify education and poverty as the twomost important global development issues for the futuresuccess of their business. Seventy-eight percent of bankingexecutives, higher than the global average of 72 percent,rated education among their top three most criticaldevelopment issues.

Almost equal numbers of CEOs76 percentalso namedpoverty as one of their top-three issuessignificantlyhigher than the cross-industry, global number of 51 percent,reflecting the connection between social development

Executive Summary


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imperatives and the core business of the industry, as wellas the fact that growth in emerging markets will depend onraising the standard of living in those areas.

This perspective was also reflected in the fact that higherpercentages of banking CEOs39 percent to 29 percentacross industriesstated that the impact of developmentgaps on business has motivated them to take action onsustainability issues.

Challenges to overcome: From strategy

to executionOur study found widespread agreement among CEOs aboutwhat a new era of sustainability would look like: it is onewhere sustainability is not a separate strategic initiative, butsomething fully integrated into the strategy and operations

of a company. CEOs believe the ideas and commitment isthere, but that execution of those ideas is now the realchallenge to bringing about the new era of sustainability.

Confidence among business leaders about their progresstoward this new era is strong, and their companies are takingconcrete steps toward embedded sustainability. Eightypercent of banking CEOs stated that sustainability issuesare now fully embedded into the strategy and operations oftheir company. Our conversations with leading executiveson the challenges of integration, however, suggest that thislevel of confidence may be interpreted as a overconfidentassessment of companies progress, or may be evidence of alack of understanding of what full integration really entails.

Although sustainability has clearly become part and parcelof how many businesses operate, it has yet to permeateall elements of core businessthat is, into capabilities,processes and systems. In particular, the difficulty ofimplementation, especially across supply chains andsubsidiaries, is seen by CEOs as the top barrier to the fullintegration of sustainability. Our research finds a significantperformance gap between those banking CEOs who agreethat sustainability should be embedded throughout theirsubsidiaries (95 percent) and supply chain (83 percent), andthose who report their company is already doing so (68percent and 51 percent, respectively).

Ensuring the right external conditionsHow long will it take before the majority of companiesworldwide reach this new era in which sustainability is fullyintegrated across their global business footprint? Fifty-

four percent of CEOs surveyed (61 percent in the bankingindustry) feel that this tipping point is within a decade away,and 80 percent (78 percent in banking) believe it will occurwithin 15 years: an optimistic view perhaps unthinkable in2007 and testament to the change taking place.

CEOs acknowledge that a new generation of leadership, andconcerted efforts to shape a corporate culture supportive ofthe goals of sustainability, must underpin success in the newera. In other words, todays business environment providesa multitude of new sustainability challenges to manage, butalso significant opportunities for those who can master itsdynamics.


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However, CEOs see that progress toward that destination isby no means guaranteed or irreversible, and will require themto overcome several serious challenges, both through theirown actions and in collaboration with stakeholders. These

challenges include:

Investor uncertainty: Many CEOs believe that theinvestment community is not supporting corporate effortsto create value through sustainable products and servicesby failing to factor performance on sustainability issues intovaluation models.

Consumer uncertainty: The consumer may be king whenit comes to driving profitable sustainability, but the CEOssurveyed are looking for clearer signals that sustainabilityactually drives buying behaviors. Similarly, they are unclearas to the extent to which sustainability concerns will drive

purchasing decisions by businesses and governments. Regulatory uncertainty: Across the board, CEOs spoke ofthe need for greater clarity around the shape and scope offuture regulation in response to regulatory challenges.

Pioneers of the New EraEven though there are many barriers and challenges in thepursuit of a more sustainable banking industry, leadingcompanies are starting to successfully forge a path towardthat goal. The innovations of pioneers in the sector show

companies addressing some of the key industry challengeswhilst starting to create the backbone of a sustainableindustry:

Energy eff iciency of operations: banks are increasinglylooking to improve the environmental footprint of their ownoperations, reducing emissions while cutting costs.

Understanding of environmental risks: as estimates suggestthat as much as 40 percent of some companies EBITDAcould be at risk from emerging carbon constraints,1 banksare seeking innovative ways of incorporating their growingunderstanding of sustainability into risk management andportfolio assessment.

Serving emerging markets: in extending their geographicfootprint in the emerging markets, leading banks - bothwestern and domestic - are discovering new linkagesbetween business success and social development. Throughinitiatives in credit provision and microfinance, for example,the industry is realizing new opportunities for growththrough facilitating economic development.

Transition to a low-carbon economy: the banking sectorwill play a critical role in facilitating the transition to alow-carbon economy: in financing the innovation andinfrastructure development required, banks see newopportunities to take advantage of new waves of growth.


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Increasing trust through better stakeholder relationships:CEOs in the sector realize that rebuilding public andstakeholder trust will be paramount, and that engaging moreclosely with customers will enable them to create significant

competitive advantage in the industry.

Accelerating the tipping point:

Business action is neededIn order to overcome marketplace and economic challengesand accelerate a tipping point in the integration ofsustainability into core business, CEOs believe that a numberof essential conditions need to be put in place. Businessesneed to take a leadership role to bring them about, often incollaboration with wider stakeholders such as the UN GlobalCompact:

1. Actively shaping consumer and customer awareness,attitudes and needs. To create a market for sustainableproducts and services, CEOs see the need to increase theprovision of consumer information and set clear standards,as well as direct government incentives and investment inareas such as energy, transport and public infrastructure.

2. Generating new knowledge, skills and mindsets forsustainable development. Although businesses believe thatformal educational institutions and business schools needto do more, CEOs also recognize the need to increase theirown efforts to engender the right skills and mindsets in theirmanagers and future leaders.

3. Leading the creation of an investment environmentmore favorable to sustainable business. CEOs need to bemore proactive in engaging with investors to ensure thatthe value of sustainability activities can be demonstrated

through traditional metrics such as cost reduction andrevenue growth.

4. Embedding new concepts of value and performanceat the organizational and individual levels. Businesseswill need to measure both positive and negative impactsof business on society, track and manage sustainabilitysimpact on core business drivers and metrics, and embedsustainability in individual performance frameworksfor managers across their organizations (e.g., throughremuneration packages).

5. Creating a clearer and more positive regulatory

environment for sustainability. To avoid the unintendedconsequences of regulation, build trust and provide a moreinformed basis for policymaking, businesses should adopt amore proactive and collaborative approach with governmentsto seek out genuine opportunities for business and societalbenefit.

Banking CEOs, along with their peers from all industriesaround the world, are willing to step up to the challengesahead. They recognize that our current period is the endof the beginning and not the beginning of the end in thetransition to a new era of sustainability.


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CEO opinion:

by the numbers

41 CEOs in

the Banking

industry, from

29 countries

98%98% of banking CEOs believethat sustainability issues will beimportant or very important

to the future success of theirbusiness.

98%98% of banking CEOs believe that

sustainability issues should befully integrated into the strategyand operations of a company.

63%63% of banking CEOs reportthat they are incorporatingsustainability issues intotheir strategy and operationsmuch more than five years

ago compared to 34% acrossindustries.


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76%76% of banking CEOs citebrand, trust and reputation asamong their top three factors

driving them to take action onsustainability issues.

20%20% of banking CEOs identify

governments will be an importantstakeholder group in impactingthe way they manage societalexpectations compared to 39%across industries.

56%56% of banking CEOs citecomplexity of implementationacross functions as the mostsignificant barrier to embeddingsustainability.

88%88% of banking CEOs seeaccurate valuation by investorsof sustainability as important

to reaching a tipping point insustainability.

90%90% of banking CEOs see

merging of sustainability andfinancial metrics in reporting asimportant to reaching a tippingpoint in sustainability.

88%88% of banking CEOs reportthat their company will employnew technologies to addresssustainability issues over the nextfive years.


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In the course of our survey and conversations with CEOs,we have witnessed a fundamental shift since the lastGlobal Compact survey in 2007. Then, sustainability wasjust emerging on the periphery of business issues, an

increasing concern that was beginning to reshape the rules ofcompetition. Three years later, sustainability is truly top-of-mind for CEOs around the world. While environmental, socialand governance challenges continue to grow and CEOs wrestlewith competing priorities, sustainable business practices andproducts are opening up new markets and sources of demand,driving new business models and sources of innovation andaltering industry cost structures.

One of the clearest insights arising from our conversationswith banking CEOs is that their perception of sustainabilityis changing. For many leading companies, environmental,social and governance issues are no longer viewed principally

through the lens of marketing or risk management alone,but are increasingly seen as an integral part of core businessactivities, and a vital element in addressing several of the keystrategic challenges faced by the industry. In the wake ofthe financial crisis, questions of trust, risk and social utilityare foremost in the minds of those charting a course for thefuture of the industry and there is a growing realisationthat sustainability will sit at the heart of efforts to rebuild thesocial contract.

Although the banking industrys direct environmental footprintmay be minimal, its ability to influence the transition towardsa more sustainable economy is unparalleled. The growingopportunities to finance new waves of growth and innovation

mean that, aside from the direct reputational benefits, thereis now a risk-adjusted, profitable business case for takingsustainability seriously.2

Increased regulation and governmental

interventionThe financial crisis has led to a large number of governmentaland regulatory actions that seek to increase the stability ofthe financial sector, reduce excessive risk taking, protectconsumers and ensure credit availability. Whilst an increasein regulation and oversight is widely acknowledged asa necessary reaction to the financial crisis, one of the

consequences of increased government intervention has beento increase the complexity of the regulatory environmentand the presence of multiple, uncoordinated, and sometimescontradictory initiatives.

Although the 2009 G20 Financial Summit resulted in statedcommitments to a unified approach to regulation, the UnitedKingdom, United States and Europe have been introducingsignificant and disparate changes to their regulations (e.g.Dodd-Frank and the UK's Independent Commission on

Part OneBackground and Industry Context


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Banking) with few immediate prospects for a more cohesiveapproach. These complexities are being added to otherchanges such as increased risk and reporting requirements,and more stringent oversight of executive remuneration.

Some of the increases in regulatory intervention are rootedexplicitly in sustainability concerns. Financial regulations,for example, are beginning to focus on issues related toclimate change: in the U.S., for example, the Climate Changerule enacted by the Securities & Exchange Commission,the federal agency which holds primary responsibility forenforcing federal securities laws and regulating the securitiesindustry, requires companies to identify pending actionsto comply with federal, state and local provisions or legalactions whose costs could be material. Organizations mustnote significant factors that could render an investmentspeculative or risky, and disclose decisions concerning trends,

demands, commitments, events and uncertainties thatare reasonably likely to have a material impact on climatechange. In requiring the banking sector to take a moreholistic attitude to risk, regulators aim to create a moresustainable banking sector and ensure that banks play a rolein the wider transition towards a low-carbon economy.

In light of this regulatory situation, banks will need tore-evaluate their strategies and develop new internaloperations, processes and governance structures with theintention of developing enhanced business and product

transparency along with more proactive management of risk including investment and credit.

Banks that can effectively adapt in this manner, becomingmore transparent and risk-aware, will not only improvetheir trust and relationships with clients, governments andregulators, but will also be better positioned to deal withfuture financial crises. Having built these principles into theoperating model of the firm, banks will be able to respondmore efficiently to future regulatory requirements, improvingtheir ability to manage risks and avoiding costs and penaltiesof non-compliance.

Declining public and customer trustThe recent financial crisis has eroded public trust in thebanking sector but banks may have underestimated thenegative effects of the downturn on their business. The2010 Edelman Trust Barometer saw trust in banks plummetglobally: in the US, banking moved from the third mosttrusted to the third least trusted industry.


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The post-crisis customer is now less tolerant of poorservice quality and more than willing to switch banks. Morecomparative information is available, and consumers arewilling to do their own research: as a result, bank switching

is nearly double its pre-crisis levels. Two thirds of globalsenior executives surveyed as part of recent Accentureresearch identified shopping around, decreased loyaltyand price sensitivity as the key changes they are observingin customer behavior. Importantly, more than half of theexecutives Accenture spoke to had seen customer trust dropin banking brands.3

The industry is also becoming more competitive, with manynew entrants using innovative business models to offerdifferentiated products and services in areas such as socialbanking and social finance, which focus in particular oninvesting based on social responsibility.

A sustainability mindset is driven to a large extent by long-term customer relationships. Product-driven banking models,as opposed to customer-led models, are less acceptable tothe post-crisis consumer. The emerging customer landscaperequires a new set of banking capabilities, including betterinsights into customer behaviors and needs, and newapproaches to reach and engage them.

As the landscape becomes more competitive it is essentialfor banks to re-build trust and develop deeper, longer-lastingcustomer relationships, rather than taking a view focusedonly on short-term returns. Being more interactive is critical:

educating customers about services and products in a moretransparent and honest way. Looking to educate and protectcustomers will also be importantfor example, seeking toensure that customers have manageable debt levels instead

of taking a credit sales approach. Banks will also need tobuild stronger ties to their communities, including effortsto ensure financial access to consumers and business. Thisinteractive, community-oriented banking approach willultimately lead to more sustainable banking operations andpractices, and those banks who can adapt to a changingconsumer environment have the potential for significantadvantage in an increasingly competitive market.

Growing impact of new technologiesThe rapid pace of technological innovation is having adramatic impact on the banking industry, both internally andexternally. Many new technologies are being adopted thatpresent new opportunities for improvements in operations,processes and communications, as well as product andservice development.

Four major technological trends are especially influencingcompetition in the banking industry:

Cloud computing: through providing computing serviceson demand and software as a service, cloud computingallows organisations to bypass the expense and both ofbuying, installing, operating, maintaining and upgrading thenetworks and computers found in data centers.


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The 4 Cs: solutions leveraging and integratingtechnologies touching upon communication, collaboration,communities and content.

Analytics: Tools and approaches that turn data andinformation into insights for better decision making,innovation and steering of the organization.

Mobility: Mobile technologies support new products aswell as new modes of working that can reduce a companyscarbon footprint through teleworking, telepresence, etc.

Technology has a critically important role to play indriving sustainability in the banking sector and in creatingnew business opportunities. Cloud computing and otherinnovations such as next-generation data centers not onlyare better for the environment and more cost effectivewith reduced usage of water and energy, but also allow for

more flexible and cost-effective product development. Thismeans banks also have an opportunity to target underservedmarkets with higher returns on investment.

Technology is also driving new types of banking, includingmobile banking and mobile payments. This new directchannel to customers is opening up the banking sector tomany new parts of the world, such as sub-Saharan Africa.New approaches to retail banking are enabling many of theworlds poorest customers to get better access to bankingproducts and services, creating new opportunities forbusiness to promote social development.

Not only is technological change impacting how banksoperate internally, it is also driving significant change in theway they communicate and collaborate with their externalstakeholders. As banks develop new analytics to effectively

digest and draw insights from the increasing amount of dataon their portfolios, consumers, markets and competitors,they will be able to make better, more informed decisions.

Technology is a huge source of opportunity in the bankingsector. The highest performing banks are starting to usenew technologies in bold, innovative ways as a source ofcompetitive advantage across their whole business. The keychallenge is doing more and doing it more profitably.

Growth in emerging marketsEmerging marketsincluding the Next 11 countries as wellas the major economies of Brazil, Russia, India and China

have become a dominant force in todays global bankingindustry. Over 50 percent of the worlds global GDP comesfrom emerging markets, with nearly 100 of the Fortune 500companies based there. The bulk of global growth in the nearterm will stem from these regions, and it is predicted thatreal private consumption in the B6 countries will exceed thatof the G6 by 2025.

These emerging markets are increasingly a source ofinnovation for sustainable business models and practices.For example, about 75 percent of the worlds mobile phonesubscribers are now in the developing world, with 634 million


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in China alone. This is clearly a significant opportunity tofurther expand efficient and sustainable banking services.Banks will need to understand the slightly different needsand wants of their emerging-market customers to craft

products and services that are profitable and at the sametime advance societal goals.

Banks will play a key role in facilitating economicdevelopment and trade through microfinance initiatives,for example and therefore have a responsibility to facilitatethis in a sustainable way. This is an opportunity for banks totake a role in promoting economic development and reducingrisk in emerging markets gaining a first-mover advantagealong the way.

Transition to a low-carbon economyBecause of the growing impetusespecially from citizens and

governmentsto reduce carbon emissions, carbon financeis poised to become one of the key tools to support thetransition to a low-carbon economy. Banks have a key role toplay, as the transition will depend on companies being ableto access capital to support their investments, and financialinstitutions can mobilize this capital.

Investments supporting the rollout of low-carbontechnologies (including renewables and energy efficientinfrastructure) have seen steady growth in the past fiveyears, reaching US$40.2 billion globally for 2009. Investmentwas even resilient through the economic downturn, with only5 percent reductions in 2008.

A recent research report from Accenture and Barclays,Carbon Capital, which focuses on the growth of low-carbontechnologies over the next decade, suggests that 2.9 trillionwill be required to finance the development and rollout of

new technology in Europe alone over the next decade.4

Although uncertain policy frameworks and a host oftechnology risks are increasing the difficulty of investing inlow carbon technology, banks can realize new opportunitiesby meeting these challenges. New revenue streams areavailable by offering products and services such as liquidity,arbitrage, structured products for project financing, riskmitigation, capital leveraging and financial diversification.

As CEOs perceive ever greater links between businessperformance and sustainability, it is clear that environmentalsocial and governance issues are featuring higher on theexecutive agenda, and that there is a widespread belief thatintegrating these issues into core business and investmentdecisions will be critical to future success.


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Part TwoSustainability and Banking: State of the Industry

Banking executives belief in the

importance of sustainability is solid, in

spite of the recent economic downturn

CEOs belief in the importance of sustainability is strongwithin the banking industry. Ninety-eight percent ofthe executives surveyed affirmed the importance ofsustainability to the future success of their businessanumber higher even than the cross-industry, globalaverage of 93 percent. This is a remarkable finding, giventhat executives might be justified in believing that theenvironmental impact of financial services is less than forindustries such as energy, automotive and utilities.

The global economic downturn might have been expectedto weaken the commitment to sustainability issues. In fact,it seems to have done the opposite: 78 percent of banking

CEOs believe that the economic downturn has raised theimportance of sustainability as an issue for top management,and just 7 percent of banking CEOs report that theircompany has reduced investment in sustainability as a resultof the downturn.

Three-quarters of banking executives affirm that thedownturn has driven their company to take a longer-termview of business and the role of sustainability, and it is

apparent from our conversations that the financial crisishas had a profound impact on banks perception of theimportance of social and governance issues, particularly asthey influence their reputation in society.

The breadth of sustainability issues is

growingIt is clear from our conversations with CEOs that they arealmost united in their belief that sustainability will be animportant and disruptive trend within their sectorbutwhat do they mean by sustainability, and which issues areuppermost in their minds? The breadth and complexity ofsustainability issues are growing, and they are increasinglytied directly to future business success. As this alignmentincreases, the scope of sustainability varies significantly byindustry, often driven by those environmental, social and

governance issues on which a particular industry has thegreatest impact.

In banking, CEOs join their peers from other industriesin affirming education as the most important globaldevelopment issue for their business: 78 percent named itone of their top three issues, higher even than the globalaverage of 72 percent. Poverty was a concern almost equalin importance, with 76 percent of banking executives


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Overall

Banking

Very Important Important

68%

39%

30%

54% 93%

98%

Figure 2.1: How important are sustainability issues to the future success of your business? (Respondents answeringImportant or Very important)

Source: United Nations Global Compact-Accenture CEO Study 2010 (based on 766 completed responses)

22%10%Food security and hunger

Access to clean water and

sanitation

Education

Diversity and gender

equality

Poverty

Climate change

72%

78%

66%

63%

51%

76%

32%

29%

26%

10%

Overall

Banking

Figure 2.2: Which of the following development issues are the most critical to address for the future success of yourbusiness? (Respondents answering Important or Very important)



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29%

39%

24%22%

Governmental/regulatory environment

Pressure from investors/shareholders

Impact of developmentgaps on business

Employee engagementand recruitment

Brand, trust and reputation

Consumer/customerdemand

Potential for revenuegrowth/cost reduction

Personal motivation

72%

76%

42%

32%

46%

44%41%

39%

29%

21%

31%24%

12% Overall

Banking20%

Figure 2.3: Which factors have driven you, as a CEO, to take action on sustainability issues? (Respondents selecting eachoption as one of their top three choices)

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naming it amongst their most critical issues, reflecting theconnection between social development imperatives and thecore business of the industry, as well as the fact that growthin emerging markets will depend on raising the standard of

living in those areas.

CEOs see enhanced reputation and

potential for revenue growth and cost

reduction as the greatest opportunities

of sustainabilityThe most commonly cited factor motivating CEOs to takeaction on sustainability issues is brand, trust and reputation,selected by 76 percent of banking CEOs as one of theirtop-three factors (about the same as the global averageof 72 percent). This focus on reputation as the primary

motivating factor could be seen as a reflection of the oldsustainabilitya marketing-led exercise only tangentiallyaligned to core businessbut it may also reflect theheightened awareness of trust and reputation in the currenteconomic climate, and the growing role of sustainabilityin shaping the perceptions and purchasing decisions ofconsumers and enterprise customers alike. According toKaspar Villiger, Chairman of UBS, We have lost trust andneed to regain it with a culture of responsible behavior.

Consumers are a key constituency: 61 percent of bankingCEOs named consumers as one of their most importantstakeholders in shaping their action on sustainability. In thewake of the downturn, as banks seek to build their brands,

consumer trust will be criticaland action on sustainability,improving companies records on environmental and socialissues, is seen as a core element in generating trust.

Elements of an approach to sustainability more directlyaligned with core business are visible in the other factorsthat leading companies cite as motivators in taking action insustainability. Banking executives are especially interestedin how sustainable operations and strategies can improverevenues and help reduce costs. Forty-one percent ofthese CEOs cite the potential for revenue growth and costreduction as an important motivator in taking action onsustainability issues.

It is clear from our conversations with banking executivesthat they see the opportunity down the road to drivebusiness value and differentiated customer relationshipsfrom sustainability. This opportunity-oriented attitude issummed up well by one leading European executive: Thetransition to a low-carbon economy will present manyopportunities for us. For example, we are a leading bankin project financing for renewable energy, so it is not adiscontinuity, but an opportunity for us with our customers.


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25%

24%

22%34%

Investment community

NGOs

Media

Regulators

Consumers

Communities

Governments

Employees

58%

61%

45%

39%20%

28%

49%

21%

26%32%

15% Overall

Banking

46%

12%

Figure 2.4: Over the next f ive years, which stakeholders will have the greatest impact on the way you manage societalexpectations? (Respondents identifying each factor in their top three choices; top selections)

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CEOs are aware that this is a seismic shift for businessand society. In the words of one leading executive, Themovement away from everything you do being aboutshareholder value maximization to a real understanding

about how the business adds profitably to the common goodis an all-important shift.

The new era of alignment: Embedded

sustainabilityThe CEOs in the UNGC-Accenture study were largely inagreement on what a truly business-oriented approach tosustainability in a new era would look like. It is one in whichsustainability is not simply one among many programs,but rather sits at the heart of a companys strategy andoperations: an approach we term embedded or integratedsustainability. As Idar Kreutzer of Storebrand told us,

Corporate responsibility has become mainstream, andeveryone is trying to understand the strategic impact to theirbusiness.

High percentages of banking executives believe in thisintegrated approach, whereby sustainability is actuallyhelping to fuel the essential engine of business. Ninety-eight percent of banking CEOs believe sustainability issues

should be embedded into the strategy and operations ofthe business; 95 percent believe such embeddedness shouldextend to subsidiaries and 83 percent would also extend it tothe global supply chain.

Eighty-five percent also supported metrics embeddedin business processes to track performance againstsustainability objectives; 71 percent believed in usingsustainability goals as a measure of employee performance.Clearly, banking executives take this matter seriously, andunderstand that sustainability goals must be backed upwith different approaches to operations and performancemanagement.

A convergence of mindsetsAs this overview of the current state of the industry hasshown, the mindsets of banking CEOs are converging on acommon understanding of the importance of sustainability,as long-term drivers of consumer demand and resourceconstraints have been accelerated by the economicdownturn. A majority of CEOs now believe that sustainabilityshould be embedded within core business, but significantchallenges lie ahead in making that vision a reality.



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Internal challengesCompanies face a number of internal challenges to executinga strategy that embeds sustainability across the business. AsKaspar Villiger of UBS puts it, The more you can integrate

sustainability into business, the more it becomes a widelyaccepted approach; but taking the first step on certain issuescan be tricky. Foremost among the challenges are the needto balance and prioritize multiple objectives and initiatives,and to manage complexity across business functions.

Managing complexityCEOs report that the most significant barrier to anintegrated, company-wide approach to sustainability isthe complexity that accompanies implementation acrossdifferent functions. Fifty-six percent of banking executivessay such integration is their primary obstacle (higher than

the survey average of 49 percent). Growing concernsabout complexity demonstrate how CEOs are shifting theirsustainability focus from strategy-setting to execution: ofparticular issue for many of the CEOs we spoke to was thechallenge of ensuring a consistent, company-wide approachacross large, increasingly complex and global businesses.

Competing strategic prioritiesFifty-one percent of banking executives also report thatbalancing competing strategic priorities is currently asignificant barrier to implementation of sustainability issues.

This highlights the challenges of reconciling the need totake a long-term perspective on sustainability issues with aturbulent market environment that often forces companiesto make decisions based on near-term pressures. As KasparVilliger of UBS puts it, The behavior of companies is beingscrutinized and also criticized by more and more people. Thiscreates a certain pressure to constantly consider one's behavioras society f inds it increasingly difficult to accept even minormistakes by a company.

So although there is widespread belief in the strategicimportance of sustainability issues among CEOs, executivesare still struggling to approach sustainability as part and

parcel of core business. It is not surprising that CEOs highlightcompeting strategic priorities as a major barrier, said a CEOfrom another industry. It shows that sustainability is not yetembedded across all of their priorities. This observation bearswitness to the fact that for many businesses, sustainability isstill regarded as a separate or discrete strategy in itself, ratherthan being embedded across all corporate and functionalstrategies and business plans.

Failure to recognize alink to value drivers

Lack of skills/knowledge ofmiddle-senior management

Difficulty in engaging

with external groups

Competing strategicpriorities

Complexity ofimplementing strategy

Differing definitions ofCSR across regions andcultures

Lack of recognition fromthe financial markets

Overall

Banking

49%

56%

34%

34%

31%

24%

30%

24%

30%

39%

24%

27%

48%

51%

Figure 3.2: Which barriers keep you, as a CEO, from implementing an integrated and strategic approach to sustainability?(Respondents identifying each factor in their top three choices)



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One need is to find better ways to incorporate long-termperspectives into business strategy, moving from a focus onlyon immediate maximization of shareholder value to broaderquestions about the common good and more general societal

value. A big question to be considered is whether there ispotential competitive advantage to companies that are able toexecute longer-term strategies and monetize visions beyond athis-quarter horizon.

People and performancePerformance gaps are also apparent with regard to thecapabilities and assessment of employees. Eighty-eightpercent of banking CEOs recognize the need to invest inenhanced training of managers to address sustainabilityissuesbut only 78 percent report that their companyalready does so. It should be noted, however, that this figureis significantly higher than the survey average of 60 percent:

banks are taking the matter of retraining very seriously.

Beyond training, however, performance managementprocessesincorporating sustainability objectives intoemployee performance assessments from the frontline tothe boardroommust also change so that knowledge is

translated into behaviors. Here, too, our survey data showsa gap between ambition and realitythe largest gap inthe banking executive survey data. Although 71 percent ofbanking CEOs believe that sustainability objectives should

be included, just 34 percent report that such metrics arecurrently taken into account at their own company.

External challengesAs well as overcoming the internal challenges of integration,CEOs also believe that a number of barriers in the externalenvironment exist that are preventing companies fromadopting a more embedded approach. Although thesebarriers cannot be overcome by business acting alone, CEOsrecognize that companies will need to play an active rolein shaping the necessary conditions for sustainability toprosper. The most prominent of these challenges, based onour discussions, relate to the role of business stakeholdersin particular, consumers, investors and regulators.

Governments provide clearer direction

and support for sustainability

Merging of sustainability and financialmetrics in reporting

Boards of Directors hold management

accountable for sustainability objectives

Educational systems and business schools

develop mindsets and skills to address

sustainability

Majority of consumers demand products and

services that address sustainability challenges

Accurate valuation by investors of

sustainability in long-term investments

Greater value placed on a companys

sustainability activity by shareholders and

investors

Overall

Banking

89%

93%

86%

93%

85%

88%

84%

95%

83%

83%

76%

90%

89%

84%

73%

71%Performance on sustainability issues becomes

a critical differentiator in recruiting talent

Figure 3.3: How important will the following changes be in order to reach a tipping point where sustainability isembedded within the core business strategies of the majority of companies globally?



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Understanding consumer and customer

demandsRecognizing the supreme importance of the consumer in theindustryand reflecting the transition from sustainability asa risk management issue to one of opportunity for innovationand growth61 percent of banking CEOs consider consumersto be key drivers of change, the most important stakeholdergroup named. However, a critical question on the minds ofCEOs today is whether sustainability issues and interestsare actually driving predictable consumer and customerbehaviors and desires.

For some businesses, this uncertainty could spark astand-off, whereby scepticism about the extent to whichsustainability influences consumer behaviors leads tocompanies not attempting to stimulate demand forsustainable products and services. On the other hand, manyexecutives are starting to see a situation in which genuinegrowth in demand for products and services that addresssustainability outcomes is being strengthened by proactivemarketing, branding and innovation: 93 percent of bankingexecutives believe that a critical moment in reaching atipping point in sustainability will come when the majorityof consumers demand products and services that addresssustainability challenges.

One of the underlying issues here is whether companieslead demand, or whether in fact they simply respond to themarketplace. If they are to lead, and not just be reactive,then consumer education and communication with regard to

products sustainability benefits will be crucial to success.Sustainability metrics may be difficult for the consumerto interpret and contextualize, so companies will need todemonstrate relevant and tangible personal benefits to theindividual consumerfor example, cost savings, reducedcarbon emissions and benefits to local communities such asincreased employment.

Engaging the investor community

It appears that mainstream investors are at present apredominantly absent, if critical, part of the sustainabilitypicture. In our conversations with CEOs, a common refrainrelated to the lack of interest in sustainability activities from

investors and analysts, beyond very occasional requests fromthe socially responsible investment community. As one businessleader put it, Investors talk a good game about investing insustainable business, but that potential has yet to be realized.

Perhaps reflecting this attitude, only 34 percent of bankingCEOs identify the investor community as one of their mostinfluential stakeholders over the next three years. As one


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European business leader told us, The real pressure [to act onsustainability] would be investor pressure. Most executivesbelieved that, even if sustainability performance were trackedand measured at a corporate level, the investor community

is not interested or prepared to factor these metrics intotheir valuation models. CEOs also recognized, however, thatthe power of financial markets, if harnessed, could perhapsbe the strongest driver towards companies around the worldintegrating sustainability into core business.

Achieving more regulatory certainty

As environmental regulations change and expand around theworld, banks will need to improve their ability to navigatethe regulatory maze and engage with government agenciesproactively.

Eighty-three percent of bank executives believe that

governments and policy makers will increase their interventionsin driving sustainability, but just 56 percent said they wouldwelcome such involvement, wary perhaps of over complicatedregulations and the potential for unintended consequences.Barbara Krumsiek, President and CEO of the Calvert Group,perhaps expressed the general perspective of the industry withregard to regulation: Business needs clarity in the rules tocompete and plan efficiently. We cant have uncertainty and thethreat of regulation: it can cause paralysis.

From our conversations, it is apparent that banking CEOsare committed to the importance of sustainability to futurebusiness success, and determined to integrate sustainabilityobjectives into core business. CEOs belief in the centrality of

sustainability means that their companies are beginning to takereal, innovative actions to set their companies on the road toa new era of sustainability. However, they also recognize thatthe journey will be long and complex, and that they will have toovercome a series of challenges, both internal and external, toreach a tipping point where sustainability is truly embedded incompanies worldwide.


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Part FourPioneers of the New EraHow leading companies are finding the link between sustainability and high

performance and what a more sustainable industry might look like

The future will not be created based only on good ideas or byregulatory fiat, but rather by the innovations of real companiespushing the boundaries of what is possible. As business leadersstressed throughout our conversations, progress in embedding

sustainability will depend on businesses being able to forge,understand and communicate linkages with core businesschallenges and opportunities, as measured through revenuegrowth, cost reduction, risk management and brand value.

The innovations of sustainability pioneers in the bankingindustry show companies addressing the key challenges ofthe industry through explicit programs aimed at embeddingsustainability into every aspect of business, including supplychains, product design and innovation, marketing strategiesand stakeholder relationships.

These instances, in which companies are finding the meeting-point between business and societal value, can give us apiece-by-piece picture of what a high-performing companymight look like if the industry can overcome the challenges ofintegration, and shape the conditions that will be conducive tomore sustainable companies operating in a more sustainableeconomy.

Energy efficiency of operationsSustainability can provide valuable enterprise-wide focusfor rapid and sustained cost management. From workingwith clients in parallel industries, and taking into accountcost bases in the sector, Accenture estimates that combined

initiatives in Smart Buildings, Smart Logistics and Green ITcan remove between 1-2 percent from the cost bases of mostinvestment banks.5

Many banks have successfully made significant strides inemissions and cost reduction through energy efficiency.Paperless statements and electronic payments have animportant impact, for example, as has the use of carbonneutral buildings and telepresence. Many banks have led theway in terms of environmental responsibility. Lloyds BankingGroup invests almost 5 million annually in specific energysaving and energy efficiency measures across the Group,6 andWells Fargo has signed up to the U.S. Green Buildings CouncilLEED buildings program, and aim to register 2,500 buildingsover the next two years.7

Facing twin pressures of cost reduction and an imperative toimprove environmental performance, leading banks are takingaction to address their direct environmental impacts andreduce their cost base. As one leading European executivetold us, If sustainability is about using resources efficiently,then it serves the cost agenda as well.

Understanding of environmental risksInvestors are also focusing on material issues ofsustainability, in particular climate change especially sincesome estimates suggest that as much as 40 percent of somecompanies EBITDA could be at risk from emerging carbonconstraints.8 Investors worth US$65 trillion in assets under


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management have demanded greater disclosure of carbonemissions performance through the Carbon Disclosure Project(CDP), who collect, distribute and motivate companies to takeaction to prevent climate change.9

The industry is beginning to grapple successfully with theinclusion of environmental impacts into its investmentcriteria. For example, more than 70 financial institutions havesigned the Equator Principles, a voluntary set of standards fordetermining, assessing and managing social and environmentalrisk in project financing. The principles apply to all new projectfinance transactions with total project capital costs aboveUS$10 million.10

Lloyds Banking Group is one of the signatories to the EquatorPrinciples. During 2009, Lloyds implemented a harmonizedgroup-wide approach to monitoring and reporting EquatorPrinciples transactions, and to training personnel on theEquator Principles. An Equator Principles Review Group hasbeen formed, comprising experts from both Risk and ProjectFinance teams, and supported by external environmentalconsultants. This Group is responsible for reviewing all newEquator Principle transactions, to ensure that each transactionis compliant and is consistent with the Group EnvironmentalRisk Policy, prior to being sanctioned. All Equator Principlesprojects are reviewed as part of an annual review process.11

Acquisitions can be a way to quickly bring in sustainabilityexpertise and increase understanding. For example, in 2007Santander gained control of ABN Amros Brazilian unit, BancoReal, widely recognized as a leading company in sustainability.

Santander learned from Banco Reals approach and policiesand integrated them into the wider group. One result has beenthe application of a no-lending policy to logging companies inthe Amazon that do not have a sustainable forestry certificate.This way, the bank has enriched its approach, replicating localpractice on a global scale.12

Serving emerging marketsThe microfinance industry continues to play an importantrole in creating a more sustainable business environment inemerging markets and some major banks are playing a role.HSBC works with microfinance institutions, which in turnprovide loans to customers. For example, in India HSBC is

working with 11 microfinance institutions to provide financeto around 250,000 people in rural and urban areas.13

Lending principles are also changing in support of sustainablegrowth and development outcomes. For example, in Uganda,a Banking on Change project is being led by CARE with thesupport of Barclays. The program aims to establish more than1,000 community-managed savings and loan associations toprovide members of disadvantaged communities with a sourceof credit which they can use for necessities and income-generating activities. The partners are also providing training tothe community on business and entrepreneurial skills.14


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The Rabobank Foundationthe philanthropic unit of theNetherlandss Rabobankis active in the field of fightingpoverty in 25 developing countries. Its related focus is onmicrofinance and sustainable chain development. The Rabobank

Foundation develops and supports rural savings and creditco-operatives and microfinance institutions, as well as micro-insurance institutions.15

Mobile technologies represent an important way for banks toserve the so-called base of the pyramid consumers around theworldby some estimates, 4 billion strong. HSBC Bank Brazilhas rolled out fully integrated mobile banking (m-banking)services for its retail customer base. Through HSBC Direct, itsrecently launched virtual bank, HSBC Bank Brazil is the firstbank to offer fully integrated m-banking services to its retailcustomers, allowing them to withdraw cash from ATMs, conducttransactions, make money transfers and online payments and

check their balance, loans and investment statements.16

Banks can often leverage partnerships with established mobilecarriers and services to have an impact faster. In Africa, EquityBank teamed with communications provider Safaricom thatwill allow users of the popular m-payments service, M-PESA,to apply for an M-Kesho savings account or apply for loans,with their creditworthiness being assessed on their M-PESArecord, and the loan money credited to their M-PESA account.Customers can also open interest-earning savings accounts, andmake both deposits and withdrawals through the system.17

Transition to a low-carbon economyProgress in driving better environmental performance and thetransition towards a low-carbon economy will depend in largepart on those financing major projects. The role of the banking

industry in facilitating this transition is clear: from the scope ofissues included in due diligence to the pursuit of new financingopportunities opened up by renewable energy and intelligentinfrastructure, the banking sector will be critical to the ability ofcompanies and industries to address sustainability challenges.

Accentures recent research with Barclays on the growth of low-carbon technologies in Europe over the coming decade suggeststhat 2.9 trillion will be required to finance the developmentand roll-out of new technology, placing an onus on banks toidentify and unlock these opportunities for growth.18

Bank of America is ahead of schedule on its 10-year, $20 billion

climate-change business initiative launched in 2007, accordingto the companys 2010 Environmental Progress Report. As of thesecond quarter of 2010, the financial institution has directed$8.4 billion of the $20 billion environmental commitmentthrough lending, investing, capital markets activity, philanthropyand the companys own operations. The program is directedat companies that require investments or access to capitalmarkets to develop and commercialize energy technology,and commercial real estate developers and businesses lookingto finance energy-efficient expansion. It also targets larger


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enterprises that want to lease energy-saving equipment tobecome more efficient or use renewable sources of energy, andinvestors seeking guidance on emerging opportunities in thealternative energy sector.19

Increasing trust through better

stakeholder relationshipsOne bank that is reinventing relationships with customersis Caja Navarra in Spain. The bank has committed itself toa concept it calls civic banking. The brand strategy is builtaround transparency, accountability and social responsibility.For example, the bank encourages customers to get involvedthrough social media in how the company uses its profitsto support socially responsible projects, and to help monitorprogress of those projects.20

HSBC provides an example of what better consumer educationand outreach can mean in practice. HSBCs success inrebuilding public trust saw it surge up Fortunes Global 500Accountability Rating reaching third place in 2008, up from43rd place in 2006. As noted earlier, education is rankedhighly among banking CEOs as a concern driving sustainablebusiness practices, and HSBC is making investments to back upthat concern. The company partners with nongovernmentalorganizations across the country, which works with childrenfrom underprivileged communities. The project support helps

children go to school, learn in a positive environment and learnto live a healthy life. The bank also works with young adults toprovide vocational training and life skills so that they are able tohelp themselves lead a productive life.21

Assembling the jigsaw: towards a more

sustainable industryAs we have seen, the innovations of individual companiesallow us to build a picture of what a more sustainable industrymight look like. Across every aspect of the value chain, leadingfinancial institutions are beginning to go beyond business-as-usual, and are using sustainability as a lens to focus on thecritical opportunities offered by the transition to a low-carboneconomy. Despite strong progress, however, CEOs recognize thatthey must do more, and that to reach a tipping point they mustaccelerate the journey to a new era of sustainability.


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2. Generate new skills and mindsets

within the company to drive

sustainable developmentEighty-eight percent of banking CEOs identify the point atwhich educational systems and business schools developmindsets and skills needed for future leaders to addresssustainability as important to reaching a tipping point insustainability. Based on our conversations, banking CEOs see

the importance of education and skills at three levels.

First, at the broadest level, CEOs believe we need bettereducation systems to support sustainable developmentoutcomes. For example, increasing employment and liftingpeople out of poverty in a sustainable way depends onproviding them with opportunities to acquire a broadeducation as well as marketable skills. This is especiallyimportant to banks as they seek to expand into emergingmarkets.

Second, executives especially believe that education ofa new generation of managers, through universities and

business schools in particular, should focus on the broad setof skills needed to manage sustainability issues, especially inpartnering with a more extensive ecosystem of partners, bothcross-industry and cross-sector.

Third, although businesses believe that formal educationalinstitutions and business schools need to do more whenit comes to sustainability education and the developmentof more relevant skill sets, they also recognize the needto increase their own efforts to engender the appropriatemindsets in their managers and future leaders.

CEOs see a need for their own companies to increaseinvestment in training targeted specifically towards generatingthe right knowledge, skills and attitudes for every one of theirpeople to integrate sustainability objectives into their rolesand responsibilities: 88 percent of banking CEOs believe thatcompanies should invest in enhanced training of managers tointegrate sustainability into strategy and operationsbut only78 percent are currently doing so.

More broadly, it seemed clear from our discussions with CEOsthat often they were faced with a cadre of middle and seniormanagers that had yet to embrace sustainability or were, inmany cases, not incentivized to do so due to the companysexisting targets and performance architecture. Training thenext generation of managers will require both hard and soft

measures to develop the necessary skills and mindsets, but alsoto embed those within performance management frameworks.

3. Support the creation of an

investment environment more

favorable to sustainable businessesOne of the most common refrains in our conversationswith CEOs related to the importancebut absenceof theinvestor community as part of the solution to sustainabilitychallenges. Eighty-eight percent of banking executives seeaccurate valuation by investors of sustainability in long-

term investments as important to reaching a tipping point insustainability. However, our conversations with members ofthe investor community revealed two sides to the story andhelped identify the steps needed to ensure that the power offinancial markets can be used to drive sustainable outcomes.

Although there is a grain of truth in companies complaintsthat the investment community may turn a deaf ear to thevalue of sustainability, it is equally true that many companiesdo not do enough to communicate and engage investors inthe impact of their sustainability activities: just 63 percentof banking CEOs report that they currently incorporatesustainability issues into discussions with financial analystsalthough 83 percent say thats what they should be doing.

According to Edemir Pinto, CEO of Sao Paulo stockexchange BM&F Bovespa, CEOs may complain thatinvestors do not value their sustainability activities properly,but they need to tell investors what they are doing:if they dont communicate regularly, investors cannotincorporate these issues into their models. In additionto engaging and challenging investors on the importanceof sustainability performance, CEOs need to be moreproactive in communicating progress on a regular basis.

This also means, then, that companies must become more

proficient at measuring and tracking the impact of theirsustainability activity on core business metrics such asrevenue growth, cost reduction, risk management andreputation. By doing so, they will be able to educateinvestors as to the impact of their sustainability activityin terms that can be built into valuation models that areused and understood by the investment community.


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4. Embed new concepts of value and

performance at the organizational and

individual levelsCEOs believe that we are moving towards an era in whichbusinesses will no longer focus exclusively on profit andloss as the primary means of valuation, but rather takeinto account also the positive and negative impacts onsociety and the environment. As Hans Vestberg, CEO ofLM Ericsson, told us: We believe that it is not only acompanys economic performance that determines itssuccess, but rather successfully combining economicperformance with active management of how thebusiness impacts on social and environmental factors.

Our conversations with CEOs paint a mixed picture ofcompanies making the link between sustainability andcurrent or future value expressed in terms of revenue, cost,risk and intangibles, let alone measuring and articulatingtheir impact beyond these traditional metrics. Were gettingbetter and better at tracking the benefits, said one Europeanbusiness leader, but theres still a lot of work to be done. Ifyoure looking at the cost of materials, or energy costs, thenits very easybut brand value is more difficult to assess.

Although businesses are making some progress, it is clearfrom the survey data, as well as from our conversations, thatexecutives are struggling to structure effective performancemanagement across the business on more tangible measuressuch as carbon, water and waste emissions management,as well as on intangible assets such as the value of trust,reputation and effective stakeholder management.

Beyond the confines of financial performance, CEOs seea further challenge: although 100 percent of the bankingCEOs surveyed believe that companies should measureboth the negative and positive impacts of their activitieson sustainability outcomes, only 73 percent say that theyare doing so already. Although such analyses are oftencomplex and open to differing interpretations, they arelikely to become more prevalent as businesses seek toreassert a more expansive role in society, with widerconcerns beyond profit and loss within their own business.

The impact of this shift will be three-fold. First, itwill require businesses to measure their sustainabilityperformance in terms of their positive and negativeimpact on society. For example, whole-life impactassessments can track a companys resource footprintacross production, manufacturing and consumption.Second, it will require businesses to link their performanceon sustainability to traditional business metrics andvalue creation. Third, it will necessitate the embeddingof sustainability outcomes within employee performanceframeworks and remuneration packages. This will requirenew kinds of information systems and analytics to supporta companys sustainability performance management.

5. Create a clearer and more positive

regulatory environmentAlfredo Saenz, CEO of Grupo Santander, puts the need fora more positive regulatory environment well: the financialcrisis has put public policy issues and relations of industrywith authorities on the frontline which three years ago wasnot the case...then, the issues were growth and expansion.

To avoid the unintended consequences of unhelpfulregulationand to build trust and provide a moreinformed basis for policymakingbusinesses shouldadopt a more proactive and collaborative approach withgovernments, focusing on building sustainable mindsetsgeared towards operating with the spirit and notmerely the letter of regulations. As Barbara Krumsiekof Calvert Group puts it, We cannot write enoughregulation to force people to do the right thing.

The steps that businesses can take to help bringabout a tipping point in sustainability in concert withother stakeholders underlines the role that CEOs see

for businesses: as an enabler within a wider businessecosystem where each player focuses on how they candeliver most value and then collaborates accordingly. Italso underscores the limits to the role of business on someissues. Specifically, in some instances it does not makesense for business to take a leading roleparticularly ifanother stakeholder is better placed. Society may haveexpectations of business playing a leading role in addressingsustainability, but businesses also need to have theconfidence to identify where they can add most value.

As one top executive told us, Business can be an effectiveenabler that facilitates and brings together a network of

actors. But there are limits to business responsibility.Businesses need to be more proactive and clearer inengaging with regulators and wider stakeholders to helpset expectations about where they canand cannotachieve the most impact on sustainability issues.


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Enabling

conditions

Example business actions for banks,

based on CEO interviews

1. Consumers who consistentlydemand sustainable products andservices, creating favorable marketconditions.

Identify and quantify opportunities for new products and services created bysustainability, e.g. financing for low-carbon infrastructure and new technologies

Improve provision of customer information and education, particularly throughmeaningful and accessible metrics regarding sustainability impacts

Differentiate from competitors through communication of shared values andinnovative thinking on social development, climate risk, abatement and adaptation

2. Educational reforms that createsustainability skills and mindsets inexecutives and workforces.

Invest in enhanced training of managers on sustainability issues

Shape educational curricula and partner with academic institutions to developknowledge, skills and attitudes necessary to manage sustainability effectively

Communicate progress on sustainability issues to employees to encouragebehavioral change

3. Financial reforms that enablesustainability activity to beincorporated into valuations byinvestors.

Select and track appropriate metrics to measure and communicate sustainabilityperformance

Integrate sustainability reporting with f inancial reporting and investor relationsactivity, under the remit of the CFO

Quantify and communicate potential and actual revenue growth provided bysustainability opportunities

Incorporate sustainability analysis into risk management and portfolio appraisal

4. New concepts of value andperformance that are embedded atboth the organizational and individuallevels.

Devise mechanisms to measure both positive and negative impacts on societyand articulate value beyond traditional accounting concepts, e.g. P&L and thebalance sheet

Actively build trust with customers and other stakeholders to make the case forthe positive role of the banking sector in society, e.g. supporting development inemerging economies

Embed sustainability issues into the performance and remuneration packages oftop executives

5. A regulatory environmentthat provides clear direction onsustainability and a cooperativeenvironment for business.

Engage with governments to adopt collaborative approaches to shapingregulatione.g., joint working groups

Develop industry standards that preempt formal regulation, including voluntarystandards e.g. Equator Principles

Engage with wider stakeholders (e.g. NGOs) to develop collaborative approachesto development and local infrastructure

Figure 5.1: Creating the conditions for a new era of sustainability


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Based on our interviews with CEOs, we are starting to seea future era of sustainability with new opportunities andchallenges. The increased complexity of sustainability issuesand more diffuse networks through which they will have to

be managed will take businesses into new, often unfamiliarterrain. CEOs believe, however, that this is a future wherethe role of business is integral to development and wheresustainable development will be integral to business .

Whilst the banking industry may not historically have beenthe sector most preoccupied with the business impact ofsustainability, there is a growing recognition amongst CEOsthat, as Alfredo Saenz, CEO of Grupo Santander, told us,This crisis has been the perfect storm for the industry. Thecollapse in public trust is beginning to shape a new realityfor banks, and growing opportunities, both in new marketsand in financing the transition to a low-carbon economy, are

creating new waves of growth for the industry.

Understanding this reality, and the opportunities forcompetitive advantage that it brings, will help theindustry take important steps toward not only creatingmore sustainable economies and societies, but in building

capabilities that ensure they can maintain their own highperformance and competitiveness on the journey to a newera of sustainability.

The CEOs we spoke to described todays situation as theend of the beginning rather than the beginning of the end.Aligning markets and sustainability outcomes will requireconstant renewal and adaptation from businesses themselvesand in collaboration with others. Many challenges anddiscontinuities lie ahead, but as Idar Kreutzer of StorebrandASA told us, The risk of inaction is the greatest risk facingbusiness.

A new era of sustainability is far from guaranteed andwill require both leadership and urgency. The one criticalimperative is the need to actand act now.

Toward a new era of

sustainability: Leading the way


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References1 Accenture, Cracking the Carbon Conundrum (2009)

2 Accenture, Top Ten Challenges for Investment Banks: No. 6, TakingSustainability Seriously(2010)

3 Accenture, Customer 2012: Time for a new contract between banks andtheir customers? (2010)

4 Accenture & Barclays, Carbon Capital (2011)5 Accenture, Top Ten Challenges for Investment Banks: No. 6, Taking

Sustainability Seriously(2010)

6

Lloyds Banking Group corporate website7 Wells Fargo corporate website

8 Accenture, Cracking the Carbon Conundrum (2009)9 Carbon Disclosure Project website

10 Equator Principles website

11 http://www.lloydsbankinggroup.com/community/environment.asp12 Grupo Santander corporate website; interview input

13 HSBC corporate website

14 Barclays corporate website15 Rabobank corporate website

16 http://www.banking-business-review.com

17 http://www.riskwatchdog.com18 Accenture & Barclays, Carbon Capital(2011)

19 Bank of America corporate website20 Caja Navarra corporate website

21 HSBC corporate website

Acknowledgements

Authors

Noel GordonGlobal Managing Director, Banking

Peter LacyManaging Director, Sustainability Services Europe, Africa,Middle East and Latin America

Supporting Authors

Melissa Franolich, Arnaud Haines, Rob Hayward, CraigMindrum, Aditya Sharma and Patricia Tobin.

The authors would like to thank the following

people for their insights and assistance

David Abood, Chris Allieri, Tim Cooper, Liz Eck, Russell Ford,Mark Foster, Carrie Hall, Abhinav Kalra, Rod Kay, JustinKeeble, Georg Kell, Nijma Khan, Laura Kopec, Soma Mandal,Anton Pichler, Brenger Playford, Gavin Power, Mark Purdy,Shaun Richardson, Carron Sass, Mark Spelman, Matthias

Stausberg, Lay Lim Teo and Sonia Thimmiah.

About the UN Global Compact

The United Nations Global Compact is a call to companieseverywhere to: (1) voluntarily align their operations andstrategies with ten universally accepted principles in theareas of human rights, labour, environment and anti-corruption and (2) take actions in support of UN goals,including the Millennium Development Goals. By doing so,business can help ensure that markets advance in ways thatbenefit economies and societies everywhere.

Endorsed by chief executives, the UN Global Compact is aleadership platform for the development, implementation,and disclosure of responsible corporate policies andpractices. Launched in 2000, it is the largest corporateresponsibility initiative in the worldwith over 7,000signatories based in more than 135 countries, and LocalNetworks existing or emerging in 90 countries. Moreinformation: www.unglobalcompact.org.

About Accenture Sustainability Services

Accenture Sustainability Services helps organizationsachieve substantial improvement in performance and valuefor their stakeholders. We help clients leverage their assetsand capabilities to drive innovation and profitable growthwhile striving for a positive economic, environmental andsocial impact. We work with clients across industries andgeographies to integrate sustainability approaches into theirbusiness strategies, operating models and critical processes.Our holistic approach encompasses strategy, design andexecution to increase revenue, reduce cost, manage risk andenhance brand, reputation and intangible assets. We alsohelp clients develop deep insights on sustainability issuesbased on our ongoing investments in research, includingrecent studies on consumer expectations and global

executive opinion on corporate sustainability and climatechange. Find out more at www.accenture.com/sustainabilityor contact us at [email protected].

About the Accenture Institute for High

PerformanceThe Accenture Institute for High Performance createsstrategic insights into key management issues andmacroeconomic and political trends through original researchand analysis. Its management researchers combine world-class reputations with Accentures extensive consulting,technology and outsourcing experience to conductinnovative research and analysis into how organizationsbecome and remain high-performance businesses.


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Accenture is a global managementconsulting, technology servicesand outsourcing company, with

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