Extra episode: “Sustainable finance & long-term value creation” live from EYe on Banking & Insurance (transcript)

Transcrip: LiF Extra – Banking and Insurance Event

This is Leaders in Finance, a podcast where we find out more about the people behind their successful career. We speak with the leaders of today and tomorrow to discuss their motivations, their organizations and their personal lives. Why? Because the financial sector could use a little more honest conversation. We’d like to thank our partners for their support. They are: KAYAK, EY, Odgers Berndtson executive search and Roland Berger. Your host as always is Jeroen Broekema. 

Jeroen Broekema: Welcome to an extra episode of Leaders in Finance, recorded live from the Eye on Banking & Insurance event in Fort Voordorp here today, the 24th of November 2022, organized by EY. Today’s theme is about how banks and insurers can use sustainable finance to transform their organizations and create long term value. And that is exactly what we will do today, discussing in this episode of the podcast. I’m doing that with four really interesting people, they are Lidwien Suur, Executive Board member at Achmea, Anneka Treon, Chief Economist at Van Lanschot Kempen, Menno Bonninga, Partner and Tech Consulting Lead at EY and Jeroen van der Kroft, Partner and Transformation and Regulatory Lead at EY as well. Welcome everyone and let’s start with a quick round of introductions. It would be great if you’d give the listener a bit more flavour of who you are and what you focus on in your job. So maybe, Lidwien, I can start with you, if that’s alright?

The setting in which the podcast was recorded

Lidwien: Yes, sure, thanks. Great being here! I’m Lidwien Suur, I’ve been on the board of Achmea since 2019, so three and a half years now. And I’m responsible for P&C business and our commercial line ‘Centraal beheer en interpolis’ and our corporate relations.

Jeroen Broekema: Wonderful! Are you happy to be here today?

Lidwien: Happy to be here today and I already learned a lot this morning.

Jeroen Broekema: Great! Let’s move on. Anneka?

Anneka: Hi, I’m Anneka Treon, I’m at Van Lanschot Kempen for almost 15 years. I’m very happy to be here, very happy to talk about the long-term value creation story, it’s something that we as an organization really stand for. Also for myself personally. So I’m looking forward to the conversation.

Jeroen Broekema: Wonderful! Menno?

Menno: I’m Menno Bonninga, I’ve been with EY for a long time, fifteen years, focusing on financial services. I get really passionate about purpose-led transformation and long-term value creation. And especially the part around using data and technology to influence customer behaviour.

Jeroen Broekema: Wonderful! Jeroen?

Jeroen: Thanks for having us, it’s really exciting to be here, because it’s a topic that’s really close to my heart. We’re currently helping a lot of our clients with their sustainable finance transformation, helping on the one hand with their governance setup, helping them to transform their business model and their uprising model and their products that they’re offering to their clients.

Jeroen Broekema: Thanks, Jeroen! So in preparation of this conversation, I got a slide deck with all kinds of information about this day. On one of the slides it says, “We believe that value-led sustainability is bigger than any one business. It’s everyone’s business.” Is that true, Lidwien, also for your organization?

Lidwien: Yes, I think it is. The purpose of our whole company is actually sustainable living together. So how can we get to an inclusive society that lasts? Of course, I think insurance is long term business by its nature, but also being a company with cooperative roots we are more long term than short term focused.

Jeroen Broekema: Right. Is this really a transformation your organization has to make? Or is this already in its DNA, as it’s called?

Lidwien: It helps that it is in its DNA already, so it’s very intrinsic. But then of course, you see that all kinds of stakeholders, your clients, your employees, really push us, especially on the sustainable part. We really try to combine that as well with social inclusiveness.

Jeroen Broekema: Right. Anneka, at Van Lanschot Kempen, I’m really curious, is this something that has always been a theme with the organization, or is it really a transformation? I know the organization is quite old.

Anneka: To point out the age, we are almost 300 years old. The heritage, the long termism, it’s exactly as you say, it’s completely rooted in our organization. But I think as it is with every organization, it’s a journey and we should be modest about the fact that we are discovering alongside many others about how to embark on that journey. From our perspective, it’s our role to be stewards of our clients’ capital, that’s what we do. Whether it’s an institutional client, it could be a pension fund or a private individual. The long termism approach is exactly what we stand for, the sustainable approach. Whether it’s through asset management, how we interact with companies that we are investing in, how we think about the needs of our clients, et cetera. It really runs all the way through.

Jeroen Broekema: Right. Menno and Jeroen, you have worked and work with a lot of insurance businesses as well as banks, so you have an even more broad view, I’m sure you’re not going to mention client names here, but what are your observations with this topic?

Menno: Let me start by saying that I’m very enthusiastic about the move forward in the industry. Historically, everyone was hiding it. A lot of our clients are actually now moving more forward to the forefront and are very serious about the purpose they stand for and really try to live that purpose through values into the whole organization. I think that’s very important. Because saying one thing and actually delivering something else, I think that’s the worst that could happen. I think we have been spending a lot of time already on that today, really living it and making a step forward, I think it’s really impressive.

Jeroen: I think what it’s interesting is that most of the organizations have put it high on the agenda, but now how to make it practical? I think that’s the biggest difficulty that most of the organizations face. Because at a group level, you can say, “We’re going to make climate steps towards Paris, we are going to meet the climate accord.” The problem is, how are you going to do that? How are you going to make sure that when your relationship managers have a conversation with their clients can have that in depth conversation around the transition path that those clients go through, to make sure that their sector, their industry and that particular client is able to sustain their business past 2050?

Jeroen Broekema: Right. And do you see that the c-level people you work with are at the point they are actually implementing? Or are they mostly at the more planning stage?

Jeroen: I can’t say that for every financial services organization, because every financial services organization is at a different level of maturity. But I would say there are various issues that some of our clients are facing. On the one hand it’s determining the governance, how you set it up, how you make it workable in your organization. From a regulatory perspective, how do you make sure that you meet the regulatory standards, how do you make sure that you’ve got the data to be able to report on what you need to report on? But on the other hand, also what kinds of products and services you are going to be offering. What are you going to be in the future, post 2030-35, when you have to meet certain standards?

Jeroen Broekema: That’s a segue way to a topic which I like to discuss with all of you, which is regulation. To what extent is this transformation towards more financially sustainable organization-driven by regulation, or is it really driven by “We want to do this, this is good for the world”? Or somewhere in between? And I’m not going to point to anyone of you, so please take the floor if you like to respond first.

Menno: I’m happy to have a first go at this one, because I think regulation laws have actually given it the first push. I think that actually makes companies moving. What we now see, is that we go well beyond the regulation. It used to be more defensive, I think we’re now moving towards a more offensive mode, finding new business opportunities as well. That’s why we also see that we start to spend a lot more time with clients, really work through their value chain, to their products, et cetera. And then really start looking at the whole long term value part of it.

Jeroen Broekema: Right. And on the other side of the table here, the bank and the insurance business, how do you guys look at it?

Anneka: What I find quite fascinating from a regulatory perspective is that the regulator has given us signals. The signals are, “Look at the timing of things.” So the regulation has started with a focus on the banks, the asset owners, rather than the companies themselves. And I think by doing that, it’s essentially putting us as owners in front of the steering wheel in terms of, “This is what we expect from you, this is how we can use the rails of capitalism.” You can call it to actually start to enforce change. And I think, in a way, that’s actually very empowering and to your point, it had to come from somewhere, you needed a driving force. But what I find quite reassuring, if you look at our industry, you look at different players, this is very seriously on the agenda and it’s given us good tools, good information which I think can be learnt from when it comes to really getting into the corporates with managements of businesses and how they’re going to conduct. They’re going to conduct their affairs, so from that perspective, I think on the one hand the regulatory push is crucial. On the other hand, there’s been a lot of space, a lot of room for the asset owners to figure out, “How can we with the positioning that we have, with our positioning on the cap table of companies, use our sphere of influence and hopefully provide value?” A small example on our side, real estate is an area which Van Lanschot Kempen is really quite focused on. It’s a niche which we’ve got quite strong market expertise but also market dominance, for example, in the listed space. And what’s quite fascinating, if you look at companies, that the listed world often sets a precedence to the unlisted world. Because that’s where most of the information transparency is, something you see over and over again. Now, given the fact that we’ve got as an organization through our clients’ capital through which we’re stewards, we have quite dominant positionings in terms of knowledge, ownership of listed real estate companies, we know that real assets contribute to 60% of global CO2-emissions, that’s important. The listed part might not be the largest part, it certainly isn’t. But the listed should set a precedence. So we are working together with other owners of these businesses, because it’s a very small community and luckily, we’re in it. To work with these companies and say, “This is where we need to get to together”, how are we going to get there? If we’re not getting there, what are the consequences of that? That’s an example of using influence as an asset owner and you see regulation trickling down more to the companies themselves.

Lidwien: I think regulation basically helps us speeding up, because it creates a level playing field along the whole branch. You really need to work together and we do need to work together. For instance, if we have to develop the metrics of how to measure a carbon footprint of our whole insurance chain, for instance for P&C business, you have to do that together with the whole insurance industry. You cannot do that by yourself. On these kinds of things, I think that regulation helps also to prevent greenwashing, to make it more transparent. So it really does speed up the process. Although, of course, it’s not always nice and it’s not always in the order that you thought it out. I think, in the end, it will help.

Jeroen Broekema: Actually, I was going to ask, “Is everything positive about regulation?” but you already mentioned it.

Lidwien: In our industry, I think if you would ask a lot of people, they would say regulation is also a lot of paper on all kinds of subjects, and here as well. It’s very intense. And it’s a lot. But it’s worth the cause, I guess.

Jeroen Broekema: Right. So what I hear here is that it’s an important push, it does help, but it could also potentially be too much. That actually is a detriment to this whole process?

Lidwien: Also in regulation, we’ve set different stages on different times. And you do have to start at the right moment, because otherwise it will definitely be too much. And as Anneka said as well, of course it’s difficult that it doesn’t only reach your own industry or your own company, but also your clients. So if you want to go through that whole chain, you really need to know and to measure and to have the right data. That will take time. 

Jeroen: Maybe for me to add, if you look at the regulation, I think it’s still the early days if you look at how it’s been developing. A lot of people have been working on sustainability for a long time, but if you look at the development of regulations, the recent report by the ECB where they are basically saying, “By 2014, you need to have a transition plan in place.” I think that’s something they’re really trying to push the financial services companies. I think that’s going to continue, because if you look as ESG as a topic, we’re now focusing on climate, but on social and governance, there is also much out there. I suppose, keep your eye on the press and keep your eye on the regulator to see what they’re publishing and also how the industries are moving.

Jeroen Broekema: Right. To what extent are the customers of your customers – I’m pointing at the EY-gentlemen – ready for this transformation? Because you could be super excited about becoming a more sustainable driven organization, but if your customers are not or large chunks of your customers are not, then it’s obviously hard. Maybe I’ll look first at the bank and insurance, but do you have the feeling in short that your customers are ready for it?

Lidwien: Our customers are definitely ready for it. A lot of customers see increases in damages due to climate change. And if they don’t have it themselves, they see it around them. Think of the floods, like last year in Limburg. Next to that of course the current energy prices help them to say, “I do want to be more sustainable on my house and my car. What does that mean for my insurance policy?” So we see a lot of push from our customers. I think for us it’s important that that transition also of our customers will be an inclusive transition. So if we would only do that, for instance through pricing, so if you have an old diesel car, you will pay more. Then we will have a more social – and then we are at the ‘s’ again – division in our society that you really don’t want. So how to do this in an inclusive way with enough pace? I think that’s a very big challenge.

Jeroen Broekema: Right. Anneka, the same for you, because you guys also have customers that are with you for generations. Obviously, it’s a wide variety of customers, but there are customers that are over a hundred years with you guys. Are they ready for it?

Anneka: I would fully agree. Our client groups, our customer groups are absolutely ready for it. What we as an organization do, and I think of it because it resonates very well with who we are, but it also resonates with the customer base that we have, we really take an entrepreneurial sustainability approach. So we have actually moved away from the ESG-dialogue and much more towards a transition dialogue, because that resonates more with us and we find it also resonates more with our client base, which is really thinking more from an opportunity’s perspective. Obviously, there are multiple transitions out there, whether it’s a food transition, energy transition, material transition. And we bring it back to the very basics of what we do as an asset manager, for example, which is investing in businesses. It’s so incumbent in what we do. We’ve always been very into high quality businesses, it’s who we are. We’ve actually added it into our definition of what quality even is. Operating a business model that’s earning its right to existence on a daily basis, given all the transitions that are taking place and actually capitalizing on them for me, from a business model perspective, that’s an approach which is very important for us.

Jeroen: And I was thinking, what’s really challenging for the customers of your customers is to determine what their transition path should look like. You’ve got the food and agri business for example, you’ve got arable land, you’ve got tractors that need to be transitioned from a combustion engine to maybe other forms of energy that are more sustainable. The transport from the land to the end user, there’s a big transition that needs to happen in the whole supply chain. I think there are so many parties that are involved in that. That makes it really hard for each and every individual to make that transition. The real economy companies, like the farmer or the shipping company, they need to be helped to transition their product to a more sustainable way. That’s something that they need financing for, they need insurance for. That’s where you guys come in, you can really help these companies to transition.

Menno: I think if I look at the end customer, ultimately, I think there are two pieces. First of all, there’s this inherent expectation that you are already offering sustainable products, you are already thinking it through. I think that’s one thing. The other one is really about personal impact. It’s not only looking at large corporates, what they can do, but actually being in the position yourself where you can start making decisions about your personal finance and the way it’s being invested. I think it will have a big impact as well.

Jeroen Broekema: Right. The other grand topic, which we talked about a lot today on this conference, is data and technology. I know we can talk for hours about it, so it’s quite tricky to start talking about this. But I will still try. The role of data and technology, there is always in extremes two views. Data and technology are going to solve everything, and the other view is that it’s about the people that need to really want to change. It’s probably somewhere in the middle, but I’d love to get your views on how you use data and technology in your organizations to make this transformation. Lidwien, I start with you all the time, I don’t know why, but you are on my right side.

Lidwien: Thanks! Well, I think data and technology is at the basis of this change. It is at the basis of our industry as well, but we’ll have to measure things in a uniform way. So that’s why you need data, I guess. But also on developing new products and services you need data. We have to ensure the transition, that’s what we need to do, but we can also make new products and services around it. For instance, services around how to make an apartment building that doesn’t have one owner but a whole bunch of owners. How are you going to make that sustainable? And with having a big insurance portfolio in these kinds of buildings, we can help these owner associations, “How are we going to make this sustainable?” So the data is needed at the basis to do that.

Jeroen Broekema: In very practical terms, do you already have the people that can do that? Because it’s quite hard, right? I guess you need people with very specific skills?

Lidwien: That’s true, and you don’t do it alone. So if you live in such an apartment building right now and you know how difficult it is to make it sustainable, we have a service, we do that from ‘centraal beheer’, but we don’t do that alone. We’ve made a whole process, we’ve arranged the EU-subsidies that come with that. But we did that of course together with a lot of companies from the real economy, as we call it, to really make that change. That’s a whole chain of companies, with whom we do that.

Jeroen Broekema: Right. Anneka, would you like to add?

Anneka: Sure, I would agree. Data is massive in this and it’s extremely problematic and complicated. As mentioned, if the regulator is first opting to start off with the financial services industry and afterwards the underlying companies, by definition, we’re going to have a data problem. Because how should the financial services industry be able to assess what sorts of businesses they’re dealing with without a standard data infrastructure? And that makes it very, very challenging and it also brings a lot of creativity, of course. The biggest issue and the biggest risk is fragmentation, and a lack of a single source of truth. Given that we are still relatively immature, given that it’s still rather immature in terms of where we want to go, what we want to achieve and at least they’re on the ‘E’ part of the ESG, at least there’s a little bit more uniform agreement, whether it’s temperature degrees, et cetera. What we as an organization are trying to do, at least within our own universe, is create a single source of truth. We’ve nicknamed it ‘the big green egg’, because that’s always fun. And within the big green egg, what we’re doing is essentially quite straight forward, but it’s really one on one, assemble and put together all the various data sources we have that are relevant from a sustainability standpoint and that’s our single source of truth when it comes to conducting analysis, conducting reporting, taking into account clients’ interests, clients’ preferences, et cetera and taking it out from there. It’s so critical that we felt – you always have a buy and build trade-off, strategically – “We want to own this and build this in-house.”

Jeroen Broekema: Right. And so, you’ve worked on that with other organizations? Or is this really only coming from you? In other words, is this comparable to what other organizations do?

Anneka: We try to be as modest as possible in terms of what we’re good at and what we’re not that good at. IE: What can we use external expertise for? So this is essentially amalgamation of intelligence from third parties, internal intelligence, just to make sure that across all our client groups, they’re able to access something which is not contradictory, but more importantly, something which can hopefully be quite powerful. I think all businesses are facing similar situations, so they’re all building their own data infrastructure, but I wouldn’t know the ins and outs of others; I know what we are busy with.

Jeroen Broekema: Right, makes sense! And Menno, are you seeing this as well with your organization? I assume you guys help organizations a lot with using your data and technology to transform?

Menno: Absolutely. I think data is always a topic on many different levels. But let me start with the first one, I think most of the changes we’re doing are through the regulation side. So I think you cannot know what the data is you need right now. Some of the data you have in-house, but other data you need to acquire and actually start putting it together. But I think one of the changes that you don’t see, if you are operating a global business, how do you make sure it’s actually consistent globally? That’s massively important. So I think that’s the first piece. The second piece is how you get to such an infrastructure that is actually flexible enough? Because right now, you know what the data is that you need to have now. But we also know that there are a lot more regulations that are going to come. So how do you make sure that you’re really flexible and scalable from that perspective? And also the use case, right now it’s very much regulatory. But what we have already mentioned, it is going to become more offensive in terms of new product development. So the new use of data starts to really spend time on that. But I think ultimately, whatever you do, a lot of the organizations have already defined the purpose, the values, the governance is now being put in place. Now you need to start getting the metrics and the behaviours. Just to start measuring what we are committing to is also really based on data and typically technology, like reporting platforms.

Jeroen Broekema: That’s a lot already. So Jeroen, it’s hard to add to that, or not?

Jeroen: I think the biggest challenge for the real economy organization is that there are so many different standards. The United Nations have adopted 300 standards that they feel are appropriate, based on at least two STGs. For example, if you’re trading in textile, there are forty standards that you can adhere to. So from a financial services company perspective, that’s really challenging. Because your client, which standard are they adopting? Does that standard meet the repertoire requirements that you have as a financial institution?

Jeroen Broekema: Right, thank you. That’s great. Last but not least, because we’re only recording around half an hour for this podcast, I wanted to ask you, can you mention one largest opportunity for you, in terms of sustainable finance and transformation, the theme of this day’s event? Something that’s challenging for you, something you see or your clients are challenged with, in the case of EY, or find hard to deal with? I gave you a little bit of time to think right now, by continuing to talk, but if someone wants to take the floor, please do. So one challenge and one opportunity.

Jeroen: The biggest thing from this day, and I think from this day onwards, is to act now. Most financial institutions need to do something now to make sure that they’re ready, that they’re able to deal with the granularity that they have to deal with in order to be able to report and to have in depth conversations with their clients to help them with their transition.

Jeroen Broekema: Great.

Menno: From my perspective, it’s to really be proud of the fact that you can actually take the lead in the financial services sector. It might be difficult, because today a lot of pressure is being put on you. And I think you’re being exposed in many different ways. But at the same time, I think the world is ready and I think you need to be proud to take the lead. There is no right or wrong, I think you just need to start moving.

Anneka: I would follow on what you are saying. I think the opportunity is empowering the system of financial services, capital markets, to do the right thing. Which is for example to have different spreads in terms of costs of capital for more brown businesses, versus more green businesses. Which fundamentally should encourage more capital into businesses which are making more impact from a sustainability standpoint. That’s a tangible example, I think, of the opportunities that exist.

Jeroen Broekema: And the challenge?

Anneka: The challenge is keeping up with the rate at which things are changing in terms of actually executing that from an IT-reporting infrastructure perspective. Because there is always a time lack in that, as we all know.

Jeroen Broekema: Yeah, makes sense.

Lidwien: It’s great that you didn’t start with me this time! I think the greatest challenge is what we said, data, metrics, uniformity and get it together as a whole industry. And the opportunity is of course that we can make new products and services for our clients, since their demands and their questions are changing. There is a big opportunity for us.

Jeroen Broekema: Wonderful. As listeners can probably hear, there is a lot of noise now in the background. That means that we are halfway through this really interesting event here in Fort Voordorp today. So we’ll have another half day where we get all kinds of panels. Some of you I will also meet again in one of the panels. But for now, I really want to thank you for your time to talk to Leaders in Finance. That is much appreciated! Before I close, are there any final remarks that have to be made before I really close?

Menno: For me, I think the one thing is also to use this as an opportunity to innovate. I think innovation is done through difficult times. I think this is an opportunity to really change some other things that we’ve been doing for a long time.

Jeroen Broekema: Thank you all so much and enjoy the rest of this day!

Lidwien: Thanks!

Anneka: Thank you!

You’ve been listening to Leaders in Finance, we hope you’ve enjoyed the episode and we’d love to hear from you. What’s on your mind, who would you like to hear next? Tell us in an Apple or Google review, via e-mail or our social media channels. We’d greatly appreciate it! Finally, we’d like to thank our partners for their ongoing support. They are: KAYAK, EY, Odgers Berndtson executive search and Roland Berger. Thank you for listening!

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