CONNEXIS and Financial Institutions
CONNEXIS was born in the financial services industry: Franz Knecht, CONNEXIS' founder & CEO, was responsible for CSR at UBS for over 20 years. As a consequence, we have a profound insider understanding of financial institutions.
At the same time we also know that times are changing and financial institutions have to adapt to succeed in the long term, especially in the strategic field of ESG performance.
Therefore CONNEXIS works with financial institutions to
- Identify, select and integrate material ESG-CSR topics into their
- Strategies, policies and management systems
Financial Institutions occupy a unique position in the ESG-CSR arena
- Limited Direct Impact
The direct (Scope 1) social & environmental footprint of financial institutions is often limited to their own employees, operations & real estate
- Significant Indirect Impact
Their indirect (Scope 2 & 3, e.g. financed emissions) footprint however - primarily through loan, investment & insurance portfolios – often impacts entire regions, countries & continents
Financing the transition - a once-in-a-generation opportunity
The transition towards a more sustainable economy - including the 2°C target from the Paris Agreement on Climate Change - requires tremendous financial resources. Financing this transition presents an opportunity to financial institutions that probably only occurs once in a generation. The explosive development of Green Bonds throughout the past ten years is widely regarded as only a precursor to the actual change that is coming.
Financial Institutions have a unique exposure – responsible for ‘everything’ and ‘nothing’
Due to their central role in financing and insuring all industries around the world, financial institutions are indirectly exposed to all the CSR-ESG risks that these industries face. Additionally society holds financial institutions more and more accountable for the decisions they make together with - and for - their customers.
Sustainable Investment Trend - SRI & Impact Investing
Since 2015 the financial markets in Europe and the US are experiencing a strong and accelerating trend towards sustainable investment. According to 'Swiss Sustainable Finance' sustainable investments in Switzerland have jumped from CHF 141bn in 2016 to CHF 1,163bn in 2019, an increase of 820% in just 4 years or 205% per year.
This rapid change, primarily driven by a fundamental shift in customer demand, requires many financial institutions to adapt their strategies & portfolios faster than expected & planned.
CONNEXIS combines a profound understanding of financial institutions with a deep know-how in sustainable investment. Most recently, we developed the first ESG Investment Policy for BLPK, a major Swiss public law retirement fund.
US Coal Financing - A Warning Example
In April 2014 protestors organized by the World Development Movement (WDM) – an independent association of campaign groups across the UK – targeted the annual general meeting of Barclay’s Bank in London, challenging the bank’s significant involvement in financing the coal industry and the practice of ‘mountain-top-removal’ (MTR).
In March 2015 Barclay’s Bank issued a policy paper announcing that it would exit MTR financing within a reasonable timeframe.
Since then most of the largest US banks (Morgan Stanley, Wells Fargo, Citigroup, Goldman Sachs, Bank of America, JP Morgan Chase and PNC Financials) have declared their exit from coal financing.
For the coal industry this development has already triggered severe consequences: in August 2015 Alpha Natural Resources went into bankruptcy and in March 2016 coal producer Peabody Energy skipped an interest payment, warning investors it faced potential bankruptcy.
The development in the US coal industry is a warning example that ESG-CSR risks can turn from 'only' reputational risks into tangible credit risks in very short timeframes.
Unique Choice - Limited or Comprehensive Responsibility
CONNEXIS regards financial institutions as key players in the ESG-CSR arena. Banks can and should influence ESG-CSR decisions throughout their loan portfolios by integrating ESG-CSR criteria into their loan approval and risk management systems. This will reduce the bank’s own portfolio risk and positively impact sustainable development.
CONNEXIS works with banks, investment banks and asset managers to determine the material risks to their ESG-CSR performance and integrate ESG-CSR into their strategies, policies and management systems.
A Lesson from the Past
Duke Otto von Bismark, Councellor under the last German Emperor before the Great War, already had his doubts whether or not too much information and knowledge is good for our wellbeing:
the better they sleep."
Given the strong influence of psychology on financial markets, Bismarck's observation seems to be just as valid today as it was over 100 years ago.