Banks have been offering ethical funds as part of their investment offerings for some time now. However, the same way that packaged goods companies have been criticized for greenwashing, (using language that suggests environmentally-friendly qualities that a product does not actually possess), banks are also going to find themselves under increasing scrutiny when it comes to using the word “ethical.”
There are numerous SRIs (Socially Responsible Investments) that banks can offer consumers as the demand for more ethically responsible investing grows. However, if consumers view a bank as untrustworthy, it will be hard to convince conscientious investors not to go with a private firm. Before a bank can sell Millennials, women, and Generation Z ethical funds, the bank first needs to be viewed as a legitimate, trustworthy authority on social values.
At the moment, big banks do not have consumers’ trust when it comes to social responsibility. Recent and ongoing scandals, (and the lax response by major banks), have led consumers to the conclusion that big banks are not very trustworthy, and worse, that most banks don’t even care about this perception. Some banks have rolled out marketing campaigns painting themselves as warmer and fuzzier than the competition – but this effort is often met with outright cynicism by customers. If banks want to regain consumer trust and be considered as legitimate providers of ethical investment offerings, they must BE trustworthy, first and foremost.
Here are some ways banks can look to build on the idea of ethical banking, by being socially responsible from the inside out:
Banks need to provide greater transparency about where they are investing their money.
If your bank is still heavily investing in oil, consider Bank of England’s Mark Carney and his call to action, urging banks to take a more honest look at how global warming and the inevitable shift to a lower carbon economy will affect banks, and consequently, the global economy. More affluent Millennials, women, and members of the upcoming Generation Z are well-educated and value social responsibility, and will want to know where their money is being put to work.
Transparency about where the bank itself invests and an action plan to transition away from an oil-heavy portfolio are better tactics than waiting for a news source to out your bank. If your bank has not already adopted the Equator Principles, it is a commitment worth considering. This risk management system evaluates the social, environmental, and cultural impact of global projects and provides a framework for banks to ensure they are not lending to projects which will have an overall negative impact. Currently 92 global banks have agreed to adopt these principles.
Develop a best-in-class practice for determining what SRIs your bank will offer.
If you are going to call an investment fund “ethical,” you must be sure it will meet consumers’ expectations. Depending on the size of your organization, you can create ESG (Environmental, Social, and Governance) scores that are specific to your bank, but it may be easier to rely on an organization like Thomson Reuters to vet your portfolio options. Regardless of what route you take, you must clearly communicate what “ethical” means to your bank and what you do to ensure any offerings with this label meet that criteria.
Offer tailored SRIs based on consumer personas.
Another option is to enable consumers to match their specific ESG values with their investments. This is something Scotia iTrade is dabbling with, if in a more symbolic than practical way. This tool allows consumers to rate which ESG factors they value most, giving advisors useful information in tailoring an investment package that meets these specific preferences. Alternately, pre-tailored products that match the bank’s various customer personas is another way to achieve a similar, more personalized result.
Stand for something.
One of the biggest areas for banks to grow is as a trusted advisor and partner in helping customers deal with their financial lives. Study after study concludes that financial expertise is an unmet customer need. Think you are already there? Think again – our stealth attrition study investigated the loss of growth that is under banks’ radar. The study is one of many that reveals that bank customers view their bank as a necessary institution with which they have a purely transactional relationship. And shockingly, most people would rather trust a family member than a bank’s financial advisor when they have a question about their finances.
If banks are going to find growth as advisors, they need to rethink their entire approach and ask themselves why society might want a bank beyond simply transferring money from one place to another. If banks don’t get deeper than marketing campaigns and really think about their offerings from the customer’s perspective, they will be left behind. Triodos is a Dutch bank that is slowly infiltrating Europe with a promise of only lending money to companies that make a positive impact in the world. The bank’s fee structure is set up to be up front and transparent, with no hidden clauses or fees. They also list details of every loan they make on their website.
Millennials, Generation Z, and women of all ages place a strong value on social and environmental causes, and as they make up more and more of the investment market, banks must align themselves with their values. If they do not, these consumers will simply search elsewhere and invest where they feel their money will grow – and do the world some good.