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ESG: What does the future hold?

There is no doubt that ESG is going to become a key conversation in the secured lending industry over the next few years. It is already making waves, with many businesses implementing and reporting on ESG strategy. However, what can lenders expect in the upcoming years?

Europe is heavily leading the charge on ESG, accounting for 83% of ESG fund assets by the end of 2022 according to Morningstar. 20% of overall fund assets are now sustainable funds in Europe, and this is only set to increase. However, there is also substantial growth in other countries. Japan, for example, has seen a significant growth in their sustainable fund flows, and globally there has been almost a 12% increase in ESG fund assets between the third and final quarter of 2022.

Firstly, regulations are predicted to become much stronger. Regulating ESG in the secured finance industry is a must, to ensure that baseless claims are not made and lenders are truly minimizing their impact.

Assets will also evolve over the next few years, as we are already seeing across many industries and with legislation. For example, with all vehicles having to be electric in the UK, this will require finance options. There are also additional opportunities that come with this, such as electric batteries which can be repurposed and recycled. Technology will need to be flexible to suit this changing landscape, to make it easy for lenders to offer additional products.

The relationships that lenders will build with their customers will also change; they will expect the businesses they work with to do their part for sustainability, and so without ESG goals, lenders risk falling behind the competition.

How ESG is implemented across businesses globally is yet to be seen. One criticism of ESG is that it puts all of the elements at the same level. However, in reality, there are many factors that contribute to what is most important for your business. Countries with less strict labor laws, for example, may place more importance on ensuring a fair workplace, than other countries which may instead struggle with air pollution. It is widely accepted that the climate crisis, however, takes the top spot of importance in a global context.

Technology is allowing businesses to become more innovative and react quickly to changing customer demands. That’s where Solifi comes in; our Open Finance Platform is API-driven and fully configurable, so that no matter which direction ESG takes you in, you have the technology to enable you to comply. Furthermore, Solifi’s technology offers a hands-off approach to maintenance and upgrades for you, the user – we take care of the back end, so you can focus on ESG strategy. With built-in automation you can save even more time; learn more about how it can help you manage your time more effectively in our previous blog.

Over the course of this blog series, it has been clear that ESG is here to stay, and now is the time for secured finance lenders to integrate it into their long-term business strategy.

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