Within 10 years, ESG factors will Cause Systemic Change in Financial Services Sector, Says KPMG Survey

The world's financial services industry is changing faster than ever before, and industry leaders and experts say that significant changes are expected to happen within the next ten years.

In KPMG's Voices on 2030: Financial Services reinvented report, 32 renowned industry commentators, CEOs, CFOs, and board members from around the world have provided their perspectives on the future of financial services.

The voices in the report come from a wide range of people in the financial services industry, from big banks and insurance companies to new companies just starting out. Their combined picture of the future provides fascinating insights into where we are going. Their forecasts cover five areas where they — and KPMG — expect the most significant change.

The five areas include:

• ESG: the great behavioural driver of system change
• The power shift: customers gaining control of their data move power around the financial system
• A changed landscape: business models proliferate and adapt
• The data economy: data changes the economics of financial services
• Talent opportunity: talent becomes open too with ecosystem-based experience a competitive differentiator

The panel agreed that environmental, social, and governance (ESG) issues were probably one of the most important things driving change in financial services. They concluded that, even though the world isn't quite at net zero yet, financial services capital will be a key part of getting to sustainability by 2030.

According to the report, social issues like justice and equality will be fully integrated into what customers want, and investors will proactively and significantly increase their exposure to asset classes like renewables. Meanwhile, to deal with the looming global climate issue, the industry will need to collaborate with political leaders, particularly on tax policy.

Constance Hunter, Global Head of Strategy & ESG, AIG, said:

"In 2030, there is a responsibility for all organisations to think about how they behave within a global ecosystem. A decade ago, the challenge for OECD countries was to cut their greenhouse gas emissions in half and for emerging markets to reduce emissions by 2.5 per cent per year. We knew that without that progress, we would not put the world on track to keep global warming from rising over 2.0 degrees above pre-industrial levels.

"Today, the challenge is still there: insurers play a key role in building a system that encourages change. We still need a transition plan that spurs technological advancement in areas such as carbon capture to enable fossil fuel emissions to be reduced enough to allow them to be in continued use without harming the planet. China, India, Russia, and other emerging markets must be able to afford the technology for them to use it. Insurance companies that lead on finding solutions to the complex set of problems that the energy transition presents are significant winners in this marketplace."

In addition to ESG, the report contributors predict several other significant changes, including: a greater focus on digitalisation and more immersive services for banking customers; a potential for conflict as regulators remain anxious to support innovation but flex their muscles with more high-profile interventions; greater diversity and inclusion as leaders seek out a wider talent pool with broader skills, including emotional intelligence; and collaboration rather than competition, with more partnerships leveraging the skills and competencies of multiple players.

David Rice, Global COO, Commercial Banking, HSBC, said:

"Partnership is powerful. Look at how banks, technology companies, and non-financial institutions have worked together over the past ten years to create network effects and virtuous circles that help customers in the end. We've been able to cut prices and get rid of problems for everyone in the system. Indeed, in 2030, customers—whether consumers or corporates — no longer see banking as a distinct activity. It has become invisible, embedded in the underlying interaction. That could be a B2B payment, optimisation of the supply chain, or simple things like buying your groceries online. It has become the dominant distribution model for all banks.

"The reality is we are operating in a world where you can’t work independently. Banks need to find partners with whom they can build relationships that are good for both parties and help customers and suppliers. In the digital economy, the bank’s role can even be as the curator of platform interactions. It can be a consumer or a producer."

Judd Caplain, Global Head of Financial Services, KPMG International, said:

"Sector convergence has already begun, enabled and driven by new technology and innovation, and it is expected to accelerate." Concepts such as embedded finance, the platform ecosystem, and the data economy may render traditional categories of financial services and providers increasingly less relevant. The other area where our voices speak as one is on the imperative to leave the world in a better place than we found it. They expect the environmental, social, and governance (ESG) phenomenon of recent years to evolve and expand — ensuring that financial services companies drive positive change. That may include climate change mitigation, but also span social justice, equality, and fairness.

"Elsewhere, many of our interviewees sense a power shift. They anticipate data driving new business models and undermining existing ways of operating. But what's most important is that they expect customers to see and understand clear benefits when they give trusted partners and businesses access to their data. Of course, not every prediction in this research will come true. Our aim with Voices On 2030 is to stimulate debate—to shed some light on the future without pretending to have all the answers."

Source: KPMG

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