Sustainability will become the next frontier of competitive advantage for retail banks—and a pillar of future growth. Leaders have already taken note and developed aggressive environmental, social, and governance (ESG) goals and agendas. Banks that have been slower to act will feel pressure, perhaps from multiple quarters, to follow suit.
- Interest in sustainability has been rising for several years. Concerns over climate change in particular have now become decision drivers not only for customers, but also for investors, policymakers, and others.
- More banks are responding by building sustainability into their digital transformation programs. Many factors will likely distinguish winning banks of the future from others. No single or universal combination of factors will make a bank sustainable.
- Environmental issues are only one leg of the stool. Social and governance initiatives are receiving as much or more attention.
BCG sets out an agenda that all retail banks can follow to raise their ESG games—and enhance their competitive positions at the same time—in our latest global retail banking report.
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Sustainability will become the next frontier of competitive advantage for retail banks—and a pillar of future growth. Leaders have already taken note and developed aggressive environmental, social, and governance (ESG) goals and agendas. Banks that have been slower to act will feel pressure, perhaps from multiple quarters, to follow suit.
- Interest in sustainability has been rising for several years. Concerns over climate change in particular have now become decision drivers not only for customers, but also for investors, policymakers, and others.
- More banks are responding by building sustainability into their digital transformation programs. Many factors will likely distinguish winning banks of the future from others. No single or universal combination of factors will make a bank sustainable.
- Environmental issues are only one leg of the stool. Social and governance initiatives are receiving as much or more attention.
BCG sets out an agenda that all retail banks can follow to raise their ESG games—and enhance their competitive positions at the same time—in our latest global retail banking report.
Retail Banking
/Report
Global Retail Banking 2022
ByLionel Aré,Thorsten Brackert,Chaojung Chen,Jorge Colado,Muriel Dupas,Alasdair Keith,Holger Sachse,Sam Stewart,Juan Uribe, andMonica Wegner
Retail banks with their eye on the future should consider two critical questions. Over the next few years, what will your customers want beyond the standard financial products and services? And how can you align your business goals with meeting those needs—before competitors beat you to it?
Sustainability—a company’s capacity to make a positive environmental and societal impact—lies at the core of the first question. This concept is moving up the priority list for all retail bank stakeholders. It’s quickly becoming the next frontier of competitive advantage and a pillar of future growth. In response, leaders have developed aggressive environmental, social, and governance (ESG) goals and agendas. Those who have been slower to act will feel pressure, perhaps from multiple quarters, to follow suit.
This raises another important question: What does a “sustainable” bank look like? There’s likely no universal combination of factors. Environmental concerns are only one leg of the stool. Social and governance initiatives are receiving as much or more attention. In emerging markets, for example, many banks are focused on issues such as poverty and financial inclusion for those with limited or no access to financial services. Consumers and regulators in many Western markets are looking for demonstrable progress on diversity, equity, and inclusion (DEI) in areas such as hiring and lending. Privacy and data-security worries put social and governance issues high on board-level agendas.
Wherever the emphasis or industry, in today’s marketplace, engaging with customers and other stakeholders on ESG issues is becoming de rigueur. Fortunately, banks start from a sound position. They have strong relationships with their customers—who want their banks to feel like a “good friend” that they can turn to for honest advice and a “school” where they can obtain financial guidance. And while customer needs vary widely by market, there are plenty of opportunities for banks to provide high-impact services at very basic levels, such as enabling sustainable behaviors or providing financial coaching. BCG research shows that in every major market, banks are innovating solutions that cover most, if not all, customer value streams.
Going further, banks must look for places in new markets where they have unique advantages and can create offerings and build business models to leverage them. For example, banks have many opportunities to innovate sustainable practices and products along the customer lifecycle. The push to limit temperature increases will drive a massive transformation of the global economy, requiring enormous investment, including by consumers (think loans for renewable energy sources and electric vehicles) and small business customers, who will need to address a variety of emissions. Banks can also use the daily banking relationship as well as their personalized engagement capabilities to support customers in environmentally friendly and ethical living.
We expect that leading banks will also build platforms of offers that help consumers live more sustainably and encourage small businesses to adopt good ESG practices. This is one reason that leading retail banks are making ESG a primary focus area for their digital transformation initiatives. Banks have the potential to serve as green ecosystem orchestrators, bringing together clusters of providers that can meet customer needs in value streams such as reducing home and building or supply chain emissions. They can also provide a “one-stop green shop” that offers products and services that include a knowledge hub and tools, qualified and pre-screened vendors, cost estimations and simplified information request processes, financing support options, and more.
BCG’s recent analysis of evolving retail banking profit pools indicates that ESG-related products in core business lines could generate substantial revenue streams. It is difficult to predict how quickly this will occur, since growth will follow underlying market trends. But more important than a debate over speed is the fact that the share of bank ESG products will increase and eventually replace almost all non-ESG business. This presents a big opportunity. For example, a 20% ESG-related share in new retail banking revenues in the next five years would result in about a 10% share of total retail banking revenues—or about $300 billion by 2025. Retail banks that gain early share in these emerging product lines will be best positioned to achieve above-market growth in the coming years.
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Environmental and social challenges transcend generations—and set societies and their institutions, such as government and business, on new paths. Many banks may need to build new enablers, including green products and tools, budget and life planning tools, data and AI tools and policies, and fair pricing structures. Where they do not have internal capabilities, or these are too time-consuming or expensive to build, they may also need to pursue relevant partnerships.
We explore all these changes and their ramifications in our 2022 report on global retail banking.
Authors
Lionel Aré
Alumnus
Thorsten Brackert
Partner & Director
Frankfurt
Chaojung Chen
Managing Director & Partner
Tokyo
Jorge Colado
Managing Director & Partner
Madrid
Muriel Dupas
Senior Sector Manager
London
Alasdair Keith
Knowledge Expert, Team Manager
London
Holger Sachse
Managing Director & Senior Partner
Düsseldorf
Sam Stewart
Managing Director & Senior Partner
Sydney
Juan Uribe
Managing Director & Partner
New York
Monica Wegner
Alumna
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As an expert in the field of sustainable banking and environmental, social, and governance (ESG) practices within the financial sector, I bring a wealth of knowledge and experience to this discussion. My insights are grounded in a deep understanding of the evolving landscape where sustainability is not just a buzzword but a strategic imperative for retail banks.
The article highlights the increasing importance of sustainability as the next frontier of competitive advantage for retail banks. Leaders in the industry have recognized this shift and are actively developing aggressive ESG goals and agendas. The evidence supporting this assertion lies in the fact that sustainability is not only a concern for customers but has become a significant decision driver for investors, policymakers, and other stakeholders.
Digital transformation programs in retail banks are now incorporating sustainability, reflecting a recognition of the multi-faceted nature of ESG initiatives. The article emphasizes that environmental issues are just one aspect; social and governance initiatives are receiving equal or even greater attention. This holistic approach is crucial in addressing the diverse needs and expectations of stakeholders.
The Banking Consulting Group (BCG) proposes an agenda for retail banks to elevate their ESG efforts and enhance their competitive positions. The agenda emphasizes the need for a comprehensive approach that goes beyond environmental concerns, taking into account social and governance dimensions. This aligns with the understanding that there is no universal combination of factors that make a bank sustainable.
The article underscores the diverse focus areas in different markets, where banks may prioritize issues such as poverty, financial inclusion, diversity, equity, and inclusion (DEI), and privacy and data security. Engagement with customers and stakeholders on ESG issues is becoming a standard practice, leveraging the strong relationships that banks already have with their customers.
Furthermore, the article discusses the role of retail banks in driving sustainable practices and products along the customer lifecycle. Banks are positioned to act as green ecosystem orchestrators, bringing together providers to meet customer needs in areas like reducing emissions. The potential for ESG-related products in core business lines to generate substantial revenue streams is highlighted, presenting a significant opportunity for early adopters.
In conclusion, the article makes a compelling case for sustainability becoming a cornerstone of future growth and competitive advantage for retail banks. It emphasizes the need for a nuanced understanding of ESG issues and a proactive approach in aligning business goals with the evolving needs of customers and stakeholders.
