Curated by leading financial journalists, Sibos Issues brings you all the latest news and views from the conference</strong>. The complete PDF of this year's Preview edition will be available soon. </p> Banks have a role to play in the global endeavour to address climate change, extreme poverty, financial exclusion and gender inequality. Data could enable them to help drive change.</strong></p> Is it really the job of banks to right the world’s wrongs? In a highly-interconnected and fast-changing world, it is beyond the power of individual national governments to fix deep-seated, complex and borderless problems such as inequality, poverty and climate change. In an era of rising geo-political tension, it is also beyond the power of supranational bodies to make meaningful progress, without harnessing private sector buy-in to public policy goals. Due to its roles in facilitating capital, credit and payment flows, the finance sector can offer more support than most industries. </p> Realising shared goals requires regulation but also partnership. One landmark public-private collaboration was initiated in 2005 when then-United Nations Secretary-General, Kofi Annan, invited financial institutions to develop the Principles for Responsible Investment (PRI) framework, which guides use of environmental, social and governance (ESG) factors in investment decisions. Ten years later, the wider private sector was called on to actively support inter-governmental efforts to achieve the UN’s 17 Sustainable Development Goals by 2030, by conducting business responsibly and helping “to solve societal challenges through business innovation and collaboration” ¹</a>. The 2015 Paris Agreement on Climate Change and follow-up commitments made in Katowice brought further obligations to reform, report and reorientate. </p> As the connective tissue of the global economy, banks and other financial institutions are critical to such initiatives. “Banks can help clients transition to a low-carbon economy by developing new products and solutions, along with supporting them from an advisory perspective. This agenda is moving very swiftly and has multiple drivers," says Alexandra Basirov, global head of sustainable finance, financial institutions coverage at BNP Paribas. </p> </figure> Banks can help clients transition to a low-carbon economy by developing new products and solutions, along with supporting them from an advisory perspective. This agenda is moving very swiftly and has multiple drivers" </p>Alexandra Basirov, global head of sustainable finance, financial institutions coverage at BNP Paribas </cite></blockquote> </div></div> As well as government policy, change is being propelled by questions of enlightened self-interest, such as systemic stability, reputational risk and customer preference. Financial institutions are re-examining their exposure to oil and gas assets, for example, driven by concerns over the impact of future valuations on balance sheet metrics, as well as tightening disclosure requirements and pressure from customers and investors. </p> "Most financial institutions view climate change from a risk perspective,” says Basirov. “This is driven by regulators wanting banks and insurance companies to understand the implications of climate change on their balance sheets, taking into consideration both physical and transitional risks. The increase of central banks embedding climate-related financial risks in their supervisory approach has encouraged institutions to better understand the materiality of climate risks."</p> </figure> Most financial institutions view climate change from a risk perspective" </p>Alexandra Basirov, global head of sustainable finance, financial institutions coverage at BNP Paribas </cite></blockquote> </div></div> Building on the PRI’s success, the UN launched last year the Principles for Responsible Banking. Signed initially by more than 130 banks representing one third of global banking assets²</a>, the principles commit banks to align their business activities to the UN SDGs and the Paris Agreement. They also commit banks to inclusivity, equality and “sustainable use of natural resources”.</p> Such collaborations are essential to establishing best practice. Several PRB workstreams are focused on identifying and agreeing on the data sources and metrics to be used to measure and compare banks’ progress. This work builds on existing initiatives, such as the voluntary reporting standards drafted by the Task Force on Climate-related Financial Disclosures. </p> As well as avoiding risks, Basirov says banks and their clients should look to contribute positively too. “We need to understand the opportunities,” she asserts. “We know we have to transition our economies today, but we also know today’s technologies may not be fit for purpose to ensure we reach the targets set out by the Intergovernmental Panel on Climate Change. Other nascent technologies such as hydrogen will prove just as important. We need to consider the opportunities to finance innovations that will support the transition to a low-carbon economy, while also innovating new financial solutions and products to support existing clients to transition.”</p> Francesco Simoneschi, co-founder at payments technology provider TrueLayer, agrees on the role of data in enabling financial services firms to deliver services that improve lives. In multiple jurisdictions globally, open banking initiatives are helping to broaden the reach of financial services, notably payments, and deepen the functionality available to end-users. </p> Simoneschi cites Australia’s New Payments Platform as a framework which envisaged sharing data beyond the finance sector from the outset, encompassing healthcare, government, energy and utility sectors to facilitate payment and information flows. </p> “If you have a complete picture of an individual, you are more able to provide better financial products and services to her. With financial inclusion and open banking, we start small with banking data, but then open up. New entrants are giving customers new insights into how they spend their money, which will help people to save and invest better,” he explains. Customer data can also channel savings to ESG funds, identifying potential demand from transaction history, for example charitable donations or subscriptions. </p> If you have a complete picture of an individual, you are more able to provide better financial products and services to her. With financial inclusion and open banking, we start small with banking data, but then open up" </p>Franscesco Simoneschi, co-founder, TrueLayer</cite></blockquote> Customisable data-driven app-based services have significant potential to improve the finances of those in poverty or on low incomes. But they are predicated on consent and access. The rollout of India’s open finance ecosystem, for example, requires large-scale infrastructure and hardware investment. “The other hurdle is education. Due to literacy levels, India is looking at how to facilitate mobile-based payments through use of images, rather than words and numbers,” says Simoneschi . </p> On consent, Simoneschi acknowledges the role of data regulation and compliance culture among providers, but also points to the willingness of a new generation of customers to share their data in return for personal convenience and more communal goods. “We have a smart, savvy, educated younger generation, who are also activists. They demand products and services that are equalisers. They don’t want disparity in income and distribution of wealth so unequal as to disadvantage generations to come,” he says. </p> We have a smart, savvy, educated younger generation, who are also activists. They demand products and services that are equalisers. </p> Franscesco Simoneschi, co-founder, TrueLayer </cite></blockquote> The need to maintain market share at a time of demographic change is encouraging service providers to invest and innovate, adds Simoneschi “There is also a recognition among incumbents in this industry that if we don’t adapt, we’re dead. When you think about inclusion, gender equality and climate change, people are seeing that there is money to be made from doing business ethically. A younger generation is saying: this is not good enough, we can build better.” </p> ¹ https://www.unglobalcompact.org/sdgs/about</a></p> ² https://www.unepfi.org/news/industries/banking/130-banks-holding-usd-47-trillion-in-assets-commit-to-climate-action-and-sustainability/</a></p>