The Liminal Letter: September/October

With ESG facing political, technological, and regulatory pressure, financial services firms must adapt to stay credible, competitive, and genuinely sustainable.

ESG at a Crossroads in Financial Services

Environmental, social, and governance (ESG) has become a hot topic in the financial services world. With the rise in social instability worldwide and mounting pressure to tackle the climate crisis, regulation has become more rigidly enforced and ESG-related issues increasingly important. In fact, global ESG investing is estimated at over $30 trillion Assets Under Management, and it is expected that a third of all global AUM will have ESG mandates in 2025 (KPMG).

As a forward-looking agency powered by innovation and diligence, Liminal always strives to keep its finger on the pulse of industry trends. Even more than this, we are determined to foster truly ethical business practices both within our company and those of our clients.

Yet while ESG promotes sustainable investment and corporate accountability, it also faces significant challenges around political pushback, greenwashing, and the complex task of measuring impact responsibly.

What ESG means

ESG is a concept used to assess the ethical impact and sustainability of a company. There are various ESG reporting frameworks companies can use for a standardised approach to self-evaluation. For example, there is the comprehensive and widely used Global Reporting Initiative (GRI) as well as the Sustainability Accounting Standards Board (SASB) which alternately offers industry-specific reporting standards. These frameworks encourage reporting consistency and enable better performance comparison across different organisations.

Why ESG matters

Pressure from regulators, investors and the public have all led to a greater emphasis on ESG. Investors highly value ESG as it aids in risk management, demonstrates an alignment with their social values and improves sustainability in the long-term. Further, in meeting the expectations of stakeholders and observing regulations, companies can better their reputation in the market. Therefore, ESG not only serves investors, but builds the resilience of companies too.

It can also potentially give way to innovation and procedural improvements as companies work to reduce wasteful or costly processes. This commitment to efficiency can thus reduce costs for companies and, if publicised well, be a powerful PR tool to enhance their standing. From our work with clients, we’ve seen that the companies that take ESG seriously are also often the ones finding creative ways to innovate and differentiate themselves.

Challenges ahead

Despite its gaining momentum in the past few years, ESG still faces significant headwinds:

Political pushback: The recent retreat from ESG and DEI policies in the US has cast some uncertainty over its future.
Greenwashing: Some companies are wary of being accused of greenwashing – exaggerating their environmental credentials for good publicity.
Data and reporting burden: With regulators imposing higher standards for ESG reporting, financial services are expected to deliver more accurate, real-time metrics that can only be achieved using digital tools like AI. Indeed, global spending on ESG reporting and technology is expected to surpass $1.5 billion by 2026 which is a 210% increase from spending levels in 2022 (IDC).
The sustainability paradox: The implementation of such reporting technology is a double-edged sword as the data centres powering AI consume vast amounts of energy. In fact, the data centre sector is expected to generate 2.5bn metric tons of CO2 annually by the end of 2030, equivalent to 40% of US carbon emissions in a year (Morgan Stanley).

Thus, the complex question of how to effectively monitor and promote ESG in a sustainable, transparent way remains to be answered.

Looking forward

Ultimately, while no one has all the answers regarding the future of ESG and how to best practice ESG reporting, a general inclination towards ethical processes remains. This is especially true with regards to younger generations. In fact, nearly half of Europeans say they are more likely to use a bank or insurer that champions DEI, rising to nearly 60% for those aged 18-34 (CRIF UK).

Companies committed to championing ESG are therefore best placed to thrive, and the pursuit of new ways to monitor this progress should be encouraged in financial services. At Liminal, we are committed to helping clients navigate these complexities, ensuring ESG is not just a perfunctory exercise but a real opportunity to create meaningful change.