Climate change, water scarcity, population growth and resource constraints are all combining to create the ‘perfect sustainability storm’, which will potentially alter the financial landscape in ways that are more significant than the recent financial crisis. There is a lack of capacity in the financial sector to factor such systemic risks and opportunities into mainstream decision-making, to deploy capital towards long-term productive assets and to manage this process in a transparent and accountable way. A number of barriers to progress exist, and financial institutions across the sector are increasingly coming under pressure from regulators and other stakeholders to take action to address these sustainability risks.
PwC’s ‘Financing the future’ proposition has been designed to help financial institutions navigate the complex risks and opportunities emerging from such sustainability megatrend issues.
Our services cover four areas:
For financial institutions looking to move towards less risky business models and to support the transition to a more sustainable economy, now is the time to incorporate sustainability into overall strategy and definitions of ‘risk appetite’, as well as to develop and implement enhanced sustainability policy frameworks, articulating the governance and integration of sustainability issues into core business processes.
PwC has deep expertise in helping clients include sustainability within the articulation of strategic risk appetites, and in developing the consequent sustainability policy frameworks which frame the institution’s response. Our strategy and policy development services include scenario development, benchmarking, industry risk briefings and sustainability risk mapping.
PwC embarked on a leading edge engagement where we identified sustainability value drivers for the transport, utilities and agrifoods sectors and valued their potential impact on the shareholder value. We also conducted scenario analysis to identify the different future scenarios and its impact on the sustainability-adjusted valuation of those companies. The client was seeking to understand the financial value sustainability can bring to its investments. This input into management discussions on the sustainability strategy required to unlock greater value from investments.
Once risk appetite and sustainability policy frameworks have been considered, we can assist with the integration of these responses into decision-making processes and structures across organisations.
Integration into procedures:
This includes client acceptance (KYC), credit approval, capital allocation and equity underwriting processes. Effective integration of sustainability policy frameworks into procedures is fundamental to enabling a financial institution make more consistent, informed decisions at a client and transaction level, and to allocate capital more effectively and sustainably at a portfolio level. Doing so will improve a financial institution’s ability to manage risk, understand the sustainability realities of clients’ businesses and become a financial services partner of choice in the future.
Tools and systems:
Recognising that all financial institutions have differing approaches, we work with our clients to develop implementation approaches that are fit-for-purpose and do not encumber everyday decision-making. These comprise decision support approaches, such as questionnaires, screens and filters, and include the Sustainable Finance Toolkit, a web-based, standalone decision support system which allows financial institutions to screen clients and transactions against their own policy criteria, as well as the requirements of the Equator Principles and International Finance Corporation (IFC) Performance Standards.
PwC offers an on-demand transaction support service to assist financial institutions navigate through the complexities of environmental and social (E&S) risks with respect to specific transactions. We provide an independent expert review of the E&S issues at both an asset and company level, and can deploy experts who have unrivalled international experience in handling complex projects in contentious sectors (including oil and gas, infrastructure, mining, forestry and agribusiness) and where difficult issues (such as resettlement, biodiversity and human rights) are evident.
PwC offers a wide range of capacity building for senior executives and other staff who need to be made aware of their organisation’s approach to sustainability.
We can help with basic awareness raising, Equator Principles and IFC Performance Standards workshops, issue and sector specific workshops, executive briefings, client engagement approaches and e-learning solutions. Each of these is tailored to the organisation’s sustainability needs and approach. The basis of the capacity building is to ensure that all staff involved in the implementation of and decision-making on sustainability issues are able to make effective and consistent decisions.
Trade or financial buyers seeking to acquire assets in certain industry sectors will likely encounter health and safety or environmental business risk issues which may materially affect enterprise value, attract liabilities to a new owner or require substantial capex or opex to address post-deal. Likewise, corporates or investors preparing businesses for sale must adequately address bidder information requirements in this area of business risk, in order to facilitate an efficient auction or other sale process.