Building sustainable business models in private banks: A pathway to a better future
This report highlights the SPRING framework, aimed at integrating sustainability within private banking. It presents findings from a pilot study, emphasising the need for private banks to incorporate ESG in operations, improve risk management, foster governance, and engage clients on sustainability preferences. The report also provides actionable recommendations for private banks to drive positive environmental and social impact.
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OVERVIEW
Executive summary
The SPRING pilot study explores how private banks can build sustainable business models by integrating environmental, social, and governance (ESG) factors into their operations. The report identifies five key findings, including the necessity for private banks to adopt a sustainability strategy, strengthen risk management, and improve client interaction on ESG matters. It also highlights the importance of voting and engagement mechanisms to meet sustainability needs. A key demographic shift is noted, with nearly half (49%) of high-net-worth individuals (HNWI) under 40 expressing interest in sustainable investments, underscoring the importance of sustainability in future wealth management.
Introduction to the sustainable private banking and wealth management (SPRING) framework
The SPRING framework is designed to guide private banks in adopting sustainable practices. It includes six pillars—purpose, policies, processes, people, products, and portfolio—to assess banks’ progress on sustainability integration. The framework encourages private banks to publicly disclose their sustainability strategies, ensuring accountability at both board and management levels.
About the pilot study
Seven private banks from the US, Europe, and Asia participated in the SPRING pilot study conducted between October 2022 and February 2023. The study assessed their maturity levels across the six pillars. It identified areas where these banks require further capacity building, particularly in integrating ESG considerations across different operations. The report also notes the upcoming Great Wealth Transfer, estimated at $84 trillion by 2045, providing a key opportunity for private banks to align with the sustainability preferences of younger generations.
Findings
Integrating sustainability into private banks’ operations and policies is a necessity: The majority (5 out of 7) of banks have integrated sustainability into their activities. All have publicly committed to limiting global warming to 1.5°C in line with the Paris Agreement, and 5 banks map their strategy to the UN Sustainable Development Goals (SDGs).
Private banks need a comprehensive risk management strategy: Four banks continually monitor their portfolios for environmental and social risks like deforestation and human rights violations. Five banks use scenario analysis to manage climate-related risks. However, only two banks have exclusion policies for coal and oil & gas, indicating that many banks are still in the early stages of managing climate-related risks.
Need for better organisational culture and governance: All participating banks have board-level oversight of their ESG strategies. However, only one bank has a dedicated sustainability officer for private banking. Six banks are working to improve diversity at senior levels, focusing on gender and racial diversity.
Client ESG interaction approaches to drive positive real-world impact: Five banks do not ask clients about ESG preferences during onboarding, which poses reputational and regulatory risks. However, those that engage clients can better manage these risks. The report also highlights that only one bank votes on behalf of clients in discretionary portfolio management, reflecting a slow adoption of engagement strategies.
Need for leveraging voting and engagement to meet client sustainability needs: Private banks have been slow to adopt active engagement strategies. None of the participating banks have formal escalation mechanisms for failed engagements, and only one votes on clients’ behalf. The report encourages banks to develop voting and engagement strategies to influence investee companies towards more sustainable practices.
Recommendations
The report suggests that private banks make sustainability a strategic priority, adopt comprehensive climate and nature-related risk management, and strengthen governance structures. It also recommends linking executive compensation to sustainability performance and developing active engagement strategies to meet clients’ ESG needs. Additionally, banks are encouraged to participate in industry-wide initiatives to drive positive change.
