INTERVIEW - Sustainability in the Banking Sector
We recently interviewed Anna Eckardt, Managing Partner of MyLearningBoutique, an international consulting and training company based in Switzerland. Anna is also a researcher and university lecturer focusing on sustainability and strategy. In this interview, we discuss the role of finance in sustainability and where the banking industry should be headed for a climate-friendly future.
BEHAVEN — Hi Anna, can you introduce yourself briefly and tell us about your area of expertise?
ANNA ECKARDT — Of course, thank you for inviting me. My name is Anna Eckardt and I'm a multidisciplinary organisational consultant. I have multiple professional backgrounds, starting with a legal one in international law and competition law, following which I worked for an energy company where I focused on CSR, governance and strategy. It is ever since then that I grew passionate and determined to work towards sustainability and environmental challenges. Given the environmental impacts caused by the energy sector, I wanted to know how we could embed sustainability into strategies and build organisations around that. So, as an organisational consultant, my focus is on strategy implementation and execution. Especially on the human barriers that we encounter when implementing strategies.
What drove you towards using behavioural science to achieve sustainability?
I think it was my slightly brutal experience of trying to implement and execute strategies (with or without sustainability angles) and the realisation that people in organisations behave relatively irrationally. And they tend to be even more irrational when you pack them into boards, groups and teams. There's this wonderful quote from Nietzsche saying "Madness is rare in individuals - but in groups, parties, nations, and ages it is the rule".
This realisation made me interested in group dynamics and subsequently, I was trained as a systemic coach. This is what made me go deeper into the behavioural aspects of decision-making, such as cognitive biases. It was important to be able to decode and understand what I saw in front of me, because sometimes when developing plans and ideas, you get massive pushbacks from people in organisations. On a rational level, there are no obvious reasons for it because everything you propose has been consulted and sounds reasonable. Nevertheless, it gets rejected. Only when you crack the code of human behaviour can you try to foster change in an organisation.
That's interesting! You've been doing a lot of work with the banking sector. How would you outline the role of finance in sustainability?
While working in the energy industry as a lawyer and then as a strategy consultant, my interest in climate change grew and so did my frustration with the fact that there was so little being done to decarbonise the energy sector i.e., the big oil and gas companies that I used to work for. But when I started thinking about my PhD, I decided to tackle the problem of climate change in a different way. I decided to take a systemic approach and look for levers that could work on a global scale.
Quite quickly, I concluded that the banking or finance industry would be the right spot to look at because they are at the centre of the financial flows. I realised that the energy sector is an important player but the real leverage point is the financial industry and specifically the banks. They could be an even bigger lever towards decarbonisation than the energy sector itself. The financial industry is at the heart of the economy. Their role is to distribute money towards the real economy and more importantly, they also have the power to decide on what terms they do so. I think that's interesting because we don't have any other global player that has the power to influence global corporates in a way that a global bank does.
Do you think the finance sector is a difficult sector to change? What would you say are some specific challenges in doing so and how are they different from the energy sector?
When we speak about integrating climate change in corporate strategy, I think the banking sector is almost as challenging to change as the energy sector in the sense that they are very traditional i.e., people working there are usually quite conservative and set in their way of thinking. However, I think the energy sector is more advanced in the sense that the entire industry and many of the corporates have been on the public radar and under public scrutiny in the context of environmental impacts. It is now for some decades that the energy sector has developed processes and in-house knowledge to assess their environmental impacts.
Banks, however, didn't have the urgency to develop internal competencies. And unlike the energy sector, which focuses on energy alone, the banking sector has to meticulously learn and understand about multiple industries that they invest in, to assess their respective environmental impacts.
Another major challenge in the area of climate change is the huge variety of methodologies used to assess impacts. As you probably know, finance has been a specific area of focus at this years’ COP26 in Edinburgh. One of the main statements there was that we need trillions (USD) to finance the transition to net-zero by the middle of this century. It ended with a call to action that every financial decision needs to take the climate into account.
But how do you take the climate into account in your financial decision? Where does the data come from and what are the metrics? How exactly do you align capital with the 1.5°C goals and holistically review your portfolio? This is far from trivial and creates all kinds of challenges for banks and financial institutions. Lack of a standard framework means that institutions across the industry can choose the framework they want. While the existing frameworks are all quite good, they measure different things. So a bank claiming specific numbers as their environmental impact would see these numbers change if they were to assess it using a different framework.
This can lead to a suspicion of greenwashing which creates distrust among clients who are thinking about how to invest their money.
Would you say banks are now under more public scrutiny?
Absolutely. Compared to the situation seven years ago, I see that the heat is on. In Switzerland, a country that is famous for its banking industry, we have climate activists sitting in front of banks doors. This was not conceivable three or four years ago.
I would say the turning point for banks was the Paris Agreement in 2015 as it gave rise to the UN Finance Initiative which resulted in a task force to work on climate-relevant financial disclosures and risks. The pressure on the banking industry has been increasing ever since.
Has all this scrutiny and pressure led to any substantial changes within the industry?
In my opinion, we still have a majority of traditionalists that would only do the bare minimum. Some are proactive but very often look for the low hanging fruits only, which is not wrong but it is simply not sufficient. Interestingly enough for organisational consultants and people who deal with cognitive science, we realise that these individuals within organizations choose only specific fields to engage in because they tend to have a particular, individual interest and preference. And competent people with a certain interest in a topic usually attract like-minded people. This results in clusters of people who end up focusing on creating impactful changes in just one or two fields. Thus, many banks still operate on that individual, opportunistic level rather than being strategic about it. Nevertheless, a few front runners are trying to bring in substantial change within the industry and we are starting to see more of them.
What is the way forward for the banking industry and where do behavioural science and sustainability currently stand in this situation?
Almost every statement from banks in the context of climate change starts with the idea that it’s not the bank's responsibility to save the planet. They seem to suggest that they are happy to execute within the boundaries of regulations and upon market demand, but want to stay away from being the superheroes who save the planet. The truth is, we don't have the time or luxury to decide whether or not an industry ‘feels’ like a hero. Given the climate urgency we are in, every industry needs to use all of its capacity to lead towards the 1.5°C targets. All industries must do so, it is only a question of who does it first and what impact they will have. And if banks move fast, they could create changes on a large scale thanks to their catalytic powers within the market. That’s why in my opinion, they really must step up and take responsibility because we don't have a single minute to spare.
From a behavioural science perspective, banks could use behavioural ‘tricks’ to nudge and educate their clients to understand the impact and power of their investments. However, with nudging, there are several questions we need to address. How do we decide what is ethical and not ethical in terms of influencing behaviour? And who would make these decisions especially when we talk about large scale influence?
Independently of banking, when we focus on sustainable and pro-social behaviours of individuals and companies at large, we know that the contrary behaviours (egoistic and unsustainable) are linked to many cognitive biases that influence the perception of decision-makers and thus the functions executed. I don't think we have any other solution than working with behavioural science itself to counter them.
Lastly, would you recommend any books or publications regarding behavioural science and sustainability?
I would recommend an article that I co-authored on cognitive biases in the context of climate change as it also provides tools in addressing these biases. My go-to place for inspiration is Max Bazerman’s publications; for example, his book with Ann Tenbrunsel called ‘Blind Spots’. Then ‘Think Again’ by Finkelstein, Whitehead and Campbell and ‘Nudge’ of course, by Richard Thaler and Cass Sunstein, both very insightful books. Lastly, I also recommend the latest book ‘Noise’ by Daniel Kahneman, Olivier Sibony and Cass Sunstein, all of them are gurus in the area of decision-making.
Blind Spots, by Max Bazerman and Ann Tenbrunsel: https://press.princeton.edu/books/paperback/9780691156224/blind-spots
Think Again, by Sydney Finkelstein, Jo Whitehead and Andrew Campbell: http://mba.tuck.dartmouth.edu/pages/faculty/syd.finkelstein/thinkagain/index.html
Nudge, by Richard Thaler and Cass Sunstein: https://en.wikipedia.org/wiki/Nudge_(book)
Noise, by Daniel Kahneman, Olivier Sibony and Cass Sunstein: https://readnoise.com