There was a time not so long ago when ‘ESG’ and sustainability was the talk of senior executives across the full range of UK industry. The pandemic – and subsequent supply chain woes, inflation and customer cost-of-living pressures – have knocked those topics off the top of the immediate agenda. Perhaps it is only natural that, as a recession potentially looms, the core economic bread-and-butter needs of the country overtake what some regard as non-urgent altruistic concerns about society and the environment.
Yet it would be foolish to believe that the three concerns of ‘ESG’ (environmental, social and governance) are in some way incidental to modern successful business. For a start, these are long-term policy concerns around which a political consensus has formed, pretty much regardless of which party is in office, and regulations will continue to change the behaviour and costs for firms across all markets.
While the news agenda may be currently looking elsewhere, financial services firms can continue to play their part in modernising best practices and doing their bit to improve the environmental, social and good governance of our economy
For the non-banking financial sector, where output is in the form of added-value services, it can be hard to envisage the physical impact of day-to-day work on greenhouse gas emissions and biodiversity. Not only does office-based working have a relatively low ecological footprint, the rise of home-based work feels even less impactful, reducing commuting and conserving energy usage as technology makes service sector working more efficient than ever. However, it is in the portfolio of wider commercial activities facilitated by finance and credit where the greatest – albeit indirect – environmental impact occurs. Some estimates put the indirect impact of portfolio emissions as high as 700 times that of the financial service provider itself.
In the collections and debt purchase sector, which does not initiate the retail credit offer, the carbon impact is hard to calculate, but were it not for the amenity of collections and balance sheet improvement delivered by the collections process as part of a functioning credit cycle, new commercial and entrepreneurial activity would be stifled, as credit would be higher cost and less freely available. So the collections sector does have an impact on economic activity and must therefore reflect on its contribution to sustainability in a world of finite resources.
The good news is that the collections and debt purchase sector already operate in a highly regulated and accountable environment where competitive pressures from clients and creditors drive standards of professionalism and quality that often include good ESG practices. For example, many creditors like to see their service providers adhere to the Credit Services Association Code of Practice, which emphasises positive social actions expected of CSA member firms, including customer responsiveness, openness about processes and best practice on information and transparency. The Code sets out a framework for good social and governance behaviours of the collections sector, such as signposting customers to free debt advice if needs be, identifying vulnerabilities and acting proportionately as a result and applying forbearance where appropriate. These are standards that fit closely with today’s ESG agenda and which are now commonplace across the collections sector. There are also increasing commitments to diversity and inclusion evident across our sector – for example the Treasury’s ‘Women In Finance’ charter gaining widespread support.
Creditors are accountable to their customer expectations and are themselves establishing frameworks for awarding work that include social value requirements – and this is also now common practice across public sector procurement. There is a premium placed on service providers who contribute positively to their community and who show a dedication to improving the quality of life, career prospects and training needs of their staff. That’s why we are finding many who operate in the collections sector are keen to highlight their participation in skills investment and apprenticeships for their colleagues, because these illustrate good employment practice and a long-term commitment to local economic contribution.
While the positive work already underway across the collection sector is commendable, there are always new challenges that should be addressed. What further reforms could be made? In the CSA’s July 2022 report ‘Modernising Consumer Protection: The Case for Reforming the Consumer Credit Act’ we estimated that the volume of paper-based notices for customers mandated by these old regulations was now not only highly confusing for customers but also potentially detrimental to the environment. Our survey indicated that perhaps as many as seven million notices of various types are required to be sent by the Act which, if containing perhaps three sheets of paper each, add up to a potential annual 1.2million kg of carbon footprint. With all the postage and delivery added in, this must surely be an area for reform and modernisation with benefits for both customers and the environment!
While the news agenda may be currently looking elsewhere, financial services firms can continue to play their part in modernising best practices and doing their bit to improve the environmental, social and good governance of our economy. It is often what customers expect and more often than not translates into efficient, commercial common sense.