The wonderful circular chapel of Temple Church is sited in the City of London, between Fleet Street and the River Thames. Built by the Knights Templar in 1185 as their English headquarters, it also featured as the first safety-deposit bank in London. To prevent moving large sums of money around, pilgrims destined for the holy land could leave their cash at Temple Church and withdraw it upon arrival in Jerusalem. Instead of carrying cash, the pilgrims would carry a letter of credit. Due to the strong governance of the Knights Templar, pilgrims placed great faith in these bearded warrior monks. How does the path of the pilgrim influence today's ESG performance of banks and what is the relevance of diversity?

Originally, the reputation of banks, or image, came through portraits of clean-shaven bankers. Through the use of portraiture, early banks attempted to solidify their identity and add to the bankers social standing, as well as signal the organization’s reputation for high culture, prestige, and professionalism to those who viewed these artwork ¹. Today, in a rapidly digitalizing world with online banking and blockchain, trust is possibly even more essential to consumers. The 2019 UN Global Compact study on sustainability states that 76% of CEOs claim that citizens’ trust will be critical to business competitiveness in their industry in the next five years. 

Linking ESG performance, diversity and trust

Generally speaking, diversity instills trust. Moreover, companies with diverse boards receive higher scores on ESG performance metrics more often than those with non-diverse boards (see also Box 1. ESG performance and diversity on boards). Could diversity help solve the trust crisis in the banking sector? At first glance, gender diversity in banks seems quite balanced. According to the RobecoSAM Sustainability Yearbook 2019, insurance companies and banks have slightly more female workers than male, while diversified financials, which includes asset managers and investment banks, has slightly less (under 44%). But what if we only look at the top, specifically at the boards, and what about bankers with beards?

Banking: Poor diversity in boards

As stated in the introduction of this article, when researching the board composition at the 24 banks from the RobecoSAM Sustainability Yearbook 2018, it became evident that diversity is low. From the 24 banks researched, 309 portrayed board members appeared from either the supervisory board or board of directors. In total only 4.5% of them were bearded and just a meagre 28.8% was female, signaling a largely different picture at the top than at the bottom³.  

Corporate profits are at stake

So why is this relevant? The recent McKinsey Quarterly article “Five ways that ESG creates value”, proposes that ESG links to cash flow in five important ways: (1) facilitating top-line growth, (2) reducing costs, (3) minimizing regulatory and legal interventions, (4) increasing employee productivity, and (5) optimizing investment and capital expenditures. Regarding the third category, the article illustrates that a strong ESG performance might lead to reduced regulatory and legal interventions. On top the provided research data indicates that potential state intervention is utterly important to the banking sector. In banking an estimated 50 to 60 percent of corporate profits are at stake due to provisions on capital requirements, banks are “too big to fail,” and the importance of consumer protection.

In short, the takeaway for the financial sector is simple: building trust in the modern digital age is as important as it was in the days of the pilgrims and increasing diversity at the top of the organisation is a great starting point to do just that.

Improving your ESG performance? 

For over 15 years, Finch & Beak has assisted companies in accelerating sustainability by improving and leveraging the results from ESG benchmarks and ratings. If you are interested in learning more about how to improve the ESG performance of your company, contact Johana Schlotter at johana@finchandbeak.com or call +31 6 28 02 18 80