The Road to Net-Zero: From climate sentiment to action

In this article we explore how the financial sector’s attitude towards climate change has evolved rapidly over time, and how this is being translated into action.

Why act now?

Increasing scientific evidence on the contribution of humans to global warming has demonstrated the severity of climate change, the urgency to address it and the necessity for an ambitious and coordinated response.

This sense of urgency is felt by CxOs. In Deloitte’s 2023 CxO Sustainability Survey, nearly half of financial services industry CxOs surveyed said climate change is one of their top three issues for 2023 (Figure 1).

Figure 1: We asked financial services CxOs what their organisation sees as the most pressing issue to focus on in 2023. Climate change consistently ranked in the top 3 issues.

Nearly two thirds of CxOs reported feeling concerned about climate change ‘most’ or ‘all of the time’. Thiss heightened awareness is perhaps driven by their direct experience of extreme weather events (Figure 2). Indeed, 96% of financial services executives who reported being concerned about climate change ‘all of the time’ also said they have been personally impacted by one or more climate events in the past year.

Figure 2: Over half of financial services CxOs have been personally impacted by extreme heat, with around a third experiencing water restrictions, severe flooding and more frequent and powerful storms.

Moreover, most financial services CxOs indicate that climate change has impacted their organisations over the past year, and nearly two thirds expect the impact over the next three years to be ‘high’ or ‘very high’.

Translating sentiment to action

The impacts of climate change are now indisputably being felt, and this is prompting many firms to set ambitious decarbonisation targets. Indeed, according to the Science-based Targets Initiative, over 450 institutions across 45 countries have net zero commitments, capturing 90% of global GHG emissions.

Translating CxO’s convictions into those commitments is clearly a vital step.

But what happens after that? How are CxOs tackling the challenge of moving from a central sustainability commitment towards tangible action on climate change?

To find out, Deloitte and the IIF surveyed financial services executives globally on the integration of net zero and sustainability across their entire business.

Our report has 10 key findings:

1. Committing to net zero makes a difference

Firms that make clear commitments show much greater readiness to meet the climate challenge, and the effects are pervasive — from higher levels of product innovation, to enterprise-wide engagement, and faster progress on data. Clear commitments help firms to mobilise their organisations and galvanise their employees into action.

2. Delivering net zero entails a transformation in strategy

Net zero means changing the ways a firm develops its products, interacts with customers, designs its operating model, attracts talent, and measures success. Transition plans represent the next big step financial institutions can take on their climate journey – transformative action.

3. Only the board can sign off and oversee changes of this magnitude

As a multi-year endeavour, staying on track presents a significant challenge. Tight programme management is required across multiple divisions and operating layers.

4. The CSO-CEO nexus looks increasingly like the norm

Over 70% of firms in our survey have a CSO or equivalent (up from 31%, two years ago) and half of all CSOs now report directly to their CEOs (up from barely one in six).

5. Firms are baking in new responsibilities into most functions' BAU roles

Over 50% of firms say they've added headcount or created new roles to deliver on their net zero strategy. Client-facing teams must understand not only climate science but also the transition pathways of specific sectors so they can seize opportunities for business growth.

6. If you don't help your clients transition, somebody else will

It's never been more important for firms to understand and accelerate the transition journeys of their counterparties. The success of client outreach and product development will likely determine firms’ ability to retain and grow market share.

7. Risk skillsets are in high demand

From modelling climate scenarios to evaluating customer transition plans, risk skillsets are in high demand and are constantly evolving. Modelling methodologies are maturing rapidly, as workarounds for data gaps emerge. But risk departments still have a long way to go. Only 3% of firms are confident they can assess the climate risks posed by individual customers.

8. Data problems can be overcome by using logical proxies

No one has data that is complete, accurate or sufficiently understood. Firms that report the most progress on data exploit all available data sources (public and vendor-provided) and learn how to cope with the fragmentation of the sustainable data universe.

9. Peer pressure works

The biggest influence on firms' net zero plans is what their peers and competitors are doing.

10. Collaboration also works; let's do it more

The only way to meet the climate challenge is through extensive collaboration across the entire ecosystem of peers, clients, scientists, NGOs, governments, and regulators.