As business models evolve to meet the rapidly changing needs of stakeholders, employees, and customers, we are seeing a clear shift towards responsible and sustainable business practices. It is no longer enough for a company to produce good financial returns for its shareholders; it should also produce returns for its other stakeholders. Amara Goeree, Corporate Sustainability Programme Manager at Julius Baer, examines how this increased focus on creating value for all stakeholders is materialising within businesses, and what this means for the private banking industry.
It is safe to say that business models as we know them are evolving. Whereas in the past topics like employability, resource scarcity, climate change mitigation, and income inequality were seen as the responsibility of a country’s government – with non-governmental organisations filling in the inevitable gaps – society now considers them to be the responsibility of businesses and society more broadly.
What, though, does that mean for businesses, and specifically the private banking industry? First and foremost, it represents a cultural shift that is reflected in consumer expectations. Recent research has shown that younger generations, millennials in particular, have a much greater interest in sustainable and responsible business practices. They want to support companies that share their values, and the same is true when it comes to investing – millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.1
Given the future economic power of the younger generation, businesses that want to thrive in years to come need to address these changing client expectations and operate in a way that reflects the growing importance of sustainable and responsible practices, especially within the financial sector. At Julius Baer, we asked a number of millennial investors with a clear and well defined interest in sustainable finance – be it impact investing, sustainable investing, or ESG integration – to share their thoughts and insights on what private banks should be delivering, to help us shape our business strategy over the coming years. All of them agreed that sustainability should be fully integrated into how businesses are run in the future.
One noted that, just as grocery stores clearly label their organic and fair-trade products, financial institutions could implement a number of product labels in the future to make it easier for individual investors and their relationship managers to find the right investment based on the client’s needs. Another mentioned the importance of providing products and services that matched the values of the client by pointing out how each investor will have slightly different sustainability needs, depending on their background, culture, and life experiences. Finally, all the investors we spoke to highlighted the importance of clear messaging around the topic of sustainability; not only do they expect a broad range of responsible investment opportunities, they also expect their advisors and banks to share their values and operate accordingly.
A cross-generational shift
Of course, it is important to take the needs of all investors into account, not just the younger generation. During a stakeholder panel in September 2017, the consensus was that private banks should focus more on creating not only direct financial, but also direct societal returns through their products and services, as well as through their managerial approach. They agreed with the millennial investors that responsible investment should be embedded in the standard offering.
That is exactly the business approach to sustainability that Julius Baer takes: we offer a broad range of products and services that are in line with our clients’ values and aim to embed these principles across our business model. This includes , but is not limited to, buying CO2 certificates to offset our carbon footprint and following the UN-supported Principles for Responsible Investment (PRI), bottom-up initiatives from employees worldwide aimed at supporting local and international charities, and demonstrating our dedication to sustainability and innovation as the global sponsor of the ABB FIA Formula E electric car racing series.
In addition to a responsible investment strategy and business model, it is clear that financial institutions, like all businesses, should be working to promote a broader cultural shift towards corporate sustainability. This type of change cannot be achieved simply by top-down implementation, though – it needs to be embraced by each and every employee.
This is why sustainability strategy discussions at Julius Baer include our employees and focus on the areas they have identified as being important, such as human capital management (including diversity, learning and development, and engagement), business conduct, integrity, corporate governance, and digitalisation. Diversity, learning and development, and digitalisation will play an increasingly important role in our business model as a direct result of employee input, and we will further strengthen the emphasis that we place on operating and investing in a sustainable and responsible manner to create value for our shareholders and society as a whole.
It is clear that corporate sustainability and responsible investment will be a key facet of all businesses in years to come, including in the private banking industry, where demands for transparency and sustainable practices are constantly growing. As a result of changing consumer expectations and a growing number of international initiatives, including the UN’s Sustainable Development Goals, a sustainability strategy is no longer a luxury but a requirement, and it is the responsibility of each and every business to promote sustainable development and practices as best they can.