Sibos 2024: The future of sustainable finance – opportunities, challenges, and the road ahead

As the global community grapples with the dual challenges of environmental degradation and social inequality, the financial industry is increasingly viewed as a critical player in driving solutions.

Sustainable finance is no longer an optional add-on for banks—it is central to their future competitiveness

Yet for some industry folks, sustainable finance is nothing but a gimmick, while for others, it’s a billion-dollar business. I recently sat down with executives from Wells Fargo, ING, S&P Global Ratings, and a new fintech backed by JP Morgan to explore where sustainable finance is heading, what challenges lie ahead, and how banks can adapt to drive both profit and impact.

Adapting to client needs

John Crum, Managing Director for Specialty Equipment Finance and Leasing at Wells Fargo, has witnessed a transformation in client demands over the past few years. “Our customers are asking for solutions that align with their sustainability goals, particularly in areas like electric vehicles and renewable energy,” Crum explains. As more businesses transition toward cleaner technologies, banks must adapt their product offerings to meet these needs.

At Wells Fargo, this shift has led to the development of tailored financing solutions for EV infrastructure, including a collaboration with EnTech and ChargePoint, the largest EV hardware manufacturer in the US. By monetising government tax credits available for sustainable technologies, Wells Fargo has created financial products that reduce upfront costs for clients while contributing to environmental goals. This alignment between customer demand and innovative finance solutions illustrates how sustainable finance is reshaping traditional banking models.

Regardless of who is in government, incentives might come and go, so when asked about how that can impact his business, John explains: “We try to take the politics out of it. Our strategy is based on the quality of the product, the suitability for what it’s doing for our customers, and what their plans are long term. We may see acceleration or deceleration of adoption in the short term, but long term, the right product, technology, and application will find its way to customers regardless of what politicians are doing.” Needless to say, banks must remain agile, anticipating changes in government priorities and adjusting their strategies accordingly.

GenAI is disrupting traditional underwriting

John Yuen, Chief Risk Officer at Credential, a B-Corp certified fintech start-up backed by JP Morgan, provides a striking example of innovation at the intersection of finance and sustainability. They have taken things one step further, only onboarding customers that are doing something good for the environment; everyone else gets turned away. Credential offers interest-free loans exclusively to small businesses investing in projects that reduce carbon emissions, such as installing solar panels and battery storage solutions. Yuen explains: “In addition to traditional underwriting methods, we use generative AI and rich, real-time alternative data to make decisions quicker and more accurately. We just happen to only lend to things that also do good for society. Every $100 million we lend is $100 million an incumbent didn’t.”

Credential’s approach demonstrates that profitability and positive impact are not mutually exclusive. By using advanced AI to streamline the underwriting processes, they are also able to reduce the cost of capital for sustainable projects while delivering value for shareholders. This model presents an alternative to traditional banks, showing that fintechs can lead the way in embedding sustainability into the core of financial services.

Financing the future

Cindy Jia, Head of Sustainable Finance for the Americas at ING, believes that sustainable finance is entering a new phase—one driven by the financing of emerging technologies. “We’re going beyond traditional green and sustainability-linked financial instruments,” Jia says. “We’re advising and financing innovative sustainable technologies that are essential for addressing long-term climate goals.”

For banks, this represents both a challenge and an opportunity. Many of these technologies are still in their infancy, and financing them requires a deep understanding of their risks and potential. Jia emphasises the importance of developing specialised teams within banks that can assess these new technologies and their impact on industries such as chemical and steel manufacturing.

Moreover, as the market for sustainable finance grows, so does the need for standardisation and external verification. Jia predicts that over the next few years, the industry will move toward expanded reporting requirements, with investors demanding greater transparency on the quantitative impact of sustainable projects. This shift will require banks to invest in systems that track and report on sustainability metrics, ensuring that the financing they provide is delivering real-world results.

Regulatory frameworks and market sophistication

Bruce Thomson, Director of Sustainability Research at S&P Global Ratings, is responsible for advising their global network of 1,600 credit and sustainable finance analysts on how to better understand sustainability risk factors and integrate them into their analysis. He echoes Jia’s view on the importance of standardisation. “We’re already seeing a consolidation of standards, especially on the environmental side,” Thomson notes. This trend is helping to create a more consistent framework for measuring and reporting on sustainability, which will, in turn, provide greater clarity for both companies and investors.

He elaborates: “The cat is out of the bag. You can choose how, when, and to what degree you integrate these non-financial factors into your analysis. But I don’t think we are going to be in a place where we just decide that they’re not important or not germane to analysis.”

Another key trend Thomson identifies is the increasing sophistication of the market. “Investors are becoming more discerning about the data they receive,” he says. Gone are the days when companies could rely on glossy sustainability reports filled with selective metrics. Today’s investors demand rigorous, transparent data that provides a clear picture of a company’s sustainability performance. As a result, companies—and by extension, banks—will need to improve their reporting practices to meet these expectations.

The road ahead

In conclusion, several key trends will shape the future of sustainable finance:

1. The emergence of GenAI and new technology: AI-driven ESG data analysis will revolutionise how banks and investors assess sustainability risks. This will enable quicker, more accurate predictions about future risks, such as climate change impacts, transforming decision-making processes.
2. Consolidation of standards: As global markets mature, there will be greater consensus on how to measure and report sustainability performance. This standardisation will provide investors with consistent benchmarks, facilitating more accurate comparisons across projects and regions.
3. The growth of specialised finance: Banks will need to develop niche expertise in emerging technologies. From hydrogen fuel cells to waste heat recovery, these innovations will drive future sustainability efforts, but they require specialised knowledge for effective underwriting.

So, if it’s not clear by now, sustainable finance is no longer an optional add-on for banks—it is central to their future competitiveness. The landscape is rapidly evolving, with regulatory pressures, customer demands, and technological innovations driving change. Financial institutions that fail to adapt will miss opportunities to tap into the growing market for sustainable projects, while those that embrace the shift will be positioned to lead in both profitability and impact.

About the author

Christer Holloman is the author of How Banks Innovate and writes for FinTech Futures about innovation and diversity within financial services and fintech.