ESG is the number 1, 2 and 3 priority for financial institutions (FIs). We’re not saying that, they are! Everyone understands that financial flows need to be aligned with sustainability goals. It sounds much easier than it is. It’s a massive transition that impacts all areas. So, what’s a good place to start?
Many companies - not just FIs - start by creating an ESG policy. Often, a holistic approach is taken. We, however, like to explore a much more focused approach. And we have some good reasons for it!
A holistic ESG (Environmental, Social, and Governance) approach considers all aspects of a company's operations and how they impact the environment, society, and governance. It takes a broad view of the FI’s impact on these areas and considers how they interrelate. This approach is certainly valid and often chosen by companies that are intrinsically motivated, for example like Triodos.
A focused ESG approach, on the other hand, concentrates on specific ESG issues that are deemed most material to the company. This approach is more targeted and concentrates on the ESG areas that are most relevant to the company's operations and stakeholders.
Unique competitive positioning
A focused ESG approach enables a unique competitive positioning. Many FIs struggle with having a clear differentiation from the competition. Championing a specific ESG angle brings new positioning opportunities.
Take inspiration from Tony Chocolonely. Their mission is to make 100% slavefree the norm in chocolate. That’s not just marketing speak - Tony goes all the way. It even is reflected in the product. Tony’s chocolate bars have uneven pieces, reflecting the unfair revenue distribution in the chocolate industry.
Achieve Impact
Another benefit is that choosing an angle makes it easier to achieve real impact. It makes it possible to finance - for example - projects that best fit the choice. And to have specialists in house that understand the specifics.
Making a clear choice doesn’t mean that you disregard all other aspects. Choosing social diversity does not mean disregarding CO2 emissions. It’s all in the balance.
ESG Policy Mix Panel
We’ve created the ESG policy mix panel for FIs that like to take a focused approach while balancing it with other ESG elements.
How does the mix panel work?
The panel has slides that can be used to increase or decrease the importance of a specific ESG element. Are you the champion of social diversity? Move the slider all the way up. It’s that simple. The mix panel shows the effect of policy choices on the portfolio. It gives a side-by-side comparison with the expert weighted model.
Shifting sliders on a panel is great to model your ESG policy. Fyndoo brings the policy to life in a number of relevant lending areas:
- Impact-based pricing. In lending, pricing is based on risk. Fyndoo's pricing component goes one step further: it also uses the ESG policy model to determine the price of a loan. That way, a pricing incentive is created for loans that match the policy.
- Impact driven origination. Your ESG policy drives origination. It determines if something is a red flag or an area where you want to create impact. Fyndoo's acceptance framework contains an impact area that is parameterized by the ESG policy model.
- Comprehensive API. The mix panel exposes a comprehensive API so that the policy model can be used across the organization, not just Fyndoo!
Interested? Contact us for more information
We were at Finovate in London, demonstrating this exciting innovation on stage! Curious how this went? Check it out