It seems only a few years ago, the primary focus of financial institutions was to keep its shareholders happy. It was all about revenue streams, top and bottom line. Today the stakeholder landscape is far more complex.
Customers want to buy products and services from socially responsible organizations. Employees – especially younger generations – don’t just want to make money; they want to work for a greater good. Business partners want to cooperate with companies that share basic values. Politicians and the public in general expect the biggest companies to lead the way and help solve fundamental societal issues.
For the past couple of years showing corporate social responsibility has been closely linked to CO2 emissions: What is our carbon footprint? What plans have we made to reduce that footprint? How can we provide documentation for our continuous improvements? Public and private organizations have spent huge amounts of money on activities to keep up with environmental regulation and stay compliant.
Even though these initiatives are welcome, it’s no longer enough to react to environmental changes and adjust your business processes accordingly. The baseline for showing and communicating social responsibility has a new starting point. On top of running a sustainable operation – which is now expected as a hygiene factor – you must also steer your company with a purpose that transcends traditional business goals. Your strategy, business model and product development process must tackle fundamental issues in society.
A winning formula
The positive take on this recent development is that a “doing well by doing good”-strategy is a winning formula.
Often financial institutions have had a hard time capitalizing on its CSR and ESG activities. Occasionally it turns in a good headline or two but overall, it’s a costly affair that mainly serves the purpose of complying with rules and regulations. For many it has been too difficult and too expensive to market and scale new products or to invest in projects that are not just sustainable but also economically appealing.
That’s not the case anymore. We are still in the early stages, but we are beginning to see financial institutions build strong business cases following a “do well by doing good”-strategy.
AP Pension’s division, AP Ejendomme, recently bought real estate for 700 million Danish kroner in the multi-ethnic neighborhood, Vollsmose, in Odense. AP Pension wants to support a positive urban development in one of Denmark’s largest marginalized communities. But they also see Vollsmose as an opportunity to drive growth and attract other investors to the project.
The Danish insurance company, Tryg, has made a success of reusing damaged plastic bumpers. Previously the plastic bumpers were often thrown away when a car was involved in an accident. Today, a larger effort is made to repair the damaged bumper. The effect? Tryg supports a whole new ecosystem with car importers and garages, they engage customers and employees in a positive story, and they save money on expensive replacements.
Following the same “do well by doing good”-recipe suppliers of health insurances can use improved technology and biomarking to deliver targeted treatment options to their various customer groups and not only generic coverage for all. Likewise, fueled by innovative technology solutions financial institutions can leverage the “Long tail” theory to diversify its services portfolio and constitute new profitable markets with products that traditionally have had a low market demand or sales volume.
Multiple indirect and direct benefits
There are several upsides – both direct and indirect – by integrating a purpose-driven approach in your business.
The direct benefit is that it is a strategy to drive growth and improve your company's competitiveness. Although “do well by doing good” is not a completely new concept, there is still a lot of blue ocean to navigate in.
The indirect benefits are multiple. It generally strengthens your company’s brand on all levels when you engage in activities that resonates with a more balanced approach to doing business.
It becomes easier to attract and retain key employees. Key employees who are the main factor in how successful you can transform and digitize your business the coming years to stay competitive.
Customers’ sense of responsibility carries over to how they maintain their loans and policies. When banks, for example, lend money to sustainability projects, the instalment payments are generally on time, and when insurance companies insure machinery, the policyholder takes better care of the equipment because they know how costly and resourceful it is to make repairs.
Finally, we can see that financial institutions with a purpose-driven approach to their business activities also seem to be ahead on compliance related matters. That means they can avoid costly clean-up projects which is often the result of falling behind on compliance issues.
Identify your opportunity
The key takeaway is, that “doing well by doing good” is an opportunity to drive growth while at the same time using your knowledge and knowhow to find sustainable solutions that make a difference.
So, the questions are: What part do you want to play in society? Where and how exactly do you want to make a difference? Can you design products or services within banking or insurance that, for example, reduce social inequality or support customers that historically speaking have been underserved? Can you build a business case by filling that gap in the market?
The time is ripe for aligning purpose with profit.
Forfatter spotlight
Kristian Skotte
Spørg mig om: IT, IT-transformeringer, SAP, cloud, it-strategi Kristian er partner i Deloitte og har stor erfaring med at udvikle og strømline IT strategier for danske og internationale virksomheder. Kristian har desuden bred industrierfaring og har således erfaring fra den finansielle sektor, medicinalbranchen, energibranchen og FMCG.
Jan Auerbach
Spørg mig om: Skadeforsikring, liv & pensionsforsikring, strategi, forretningsudvikling og business transformation Jan er leder af Deloittes strategi-praksis for finansielle institutioner: Monitor Deloitte FSI. Han har mere end 20 års erfaring fra den Nordiske og Internationale forsikringsindustri. Han har med base i London bl.a. haft europæisk ansvar for strategi, distribution, forretningsudvikling og såvel store kunder som mellemmarked for et at verdens største forsikringsselskaber.