REVIEW OF FINANCIAL MARKETS
was highlighted as a particular opportunity and described as one way of “weaponising” climate response for commercial advantage, supporting Teece’s (2021) call for a dynamic response, with the word ‘weaponising’ illustrating banking’s competitive nature.
Make strategic investments to develop new capabilities Directors spoke of several different types of investment they have authorised as part of their climate response, including hiring staff with more commercial skills at an ethical bank and climate-related skills at a commercial bank; and technology training and sustainability training. However, very few directors spoke of investments they had made to develop their own capabilities. One spoke of undertaking specific risk training and another of taking a sustainability course, thus increasing their human capital. I suggest there is an opportunity here for improved practice through learning, in line with Vygotski (2004).
THE TRANSFORMING STAGE Table 3 shows that the underlying task-related attributes of the transforming stage exist and gives examples of these attributes in practice.
Enhance, align, and modify resources and capabilities All directors were alert to the need to embed climate-related skills within the bank, supporting the findings of Vygotski (2004) who recommended learning by doing, and Senge’s (1990) work on mastery. However, although directors identified that embedding climate skills within the bank was crucial, one expressed scepticism as to
whether it was possible, reluctantly concluding that skills such as scenario analysis to measure physical and transition risk would have to be outsourced to consultants. This contrasted with the chair of an investment bank who said scenario analysis would no more be outsourced than would credit analysis (decisions about to whom to lend), reiterating the need “to ensure the capability is embedded”. I suggest these divergent responses reflect the directors’ perceived self-efficacy and indicate an opportunity to improve practice. Ethical bank directors went further, suggesting that biodiversity and nature-related financial impacts are of even higher priority than climate impacts, and “arguably, you can’t solve climate without nature-based solutions and protecting nature”, reflecting their more advanced knowledge (human capital) of climate issues and potentially higher levels of perceived self-efficacy. Empowering employees through
// SUSTAINABILITY TRAINING FORCES A MINDSET SHIFT THAT WILL FILTER ITS WAY THROUGH THE ORGANISATION TOP-DOWN AND BOTTOM-UP //
staff to work closer to home and to their customers, creating jobs in rural areas as part of the bank’s climate response. The intractable problem of aligning remuneration, usually on a 12-month cycle, with sustainability, which has a far longer timeframe, was recognised by many directors, and was felt to particularly apply to commercial banks, where, due to the culture and scale of existing business lines such as mortgages, any product innovation is relatively tiny and positive impact can take years to materialise, or be material. In contrast, staff
increasing capabilities was viewed by many directors as vital. In particular, sustainability training forces a “mindset shift” that will “filter its way through the organisation in a top-down and a bottom-up way”. Given it is the frontline bankers, not the board, that see individual deals and who need to be “thinking about opportunities”, I would argue that empowering employees to make decisions, take risks, and not fear making mistakes is crucial and could lead to greater innovation and risk management, two behaviours identified as associated with active mindset. Another way of empowering staff is by rethinking branches to allow more
TABLE 3: FINDINGS AT THE TRANSFORMING STAGE OF THE PROPOSED ACTIVE MINDSET MODEL
Task-related attributes Examples
Enhance, align, and modify resources and capabilities
• Embed climate skills within institution • Empower staff to make decisions and not fear failure • Rethink branches as part of climate response • Align remuneration with sustainability
can effect significant damage in the short term through, for example, mis-selling a financial product and the bank having to pay compensation and fines. The chair of a commercial bank said: “if you focus your remuneration on a 12-month cycle, you’ll get just that … you’ve got to allow for those key performance indicators to be more future-thinking”. Although recognising the importance of aligning remuneration with climate response, no solutions were suggested. I would suggest commercial banks need to address their structure and culture in order to achieve this alignment.
THE STAGE OF REFLECTION I discuss the attributes associated with the reflection stage next, ordered by frequency of response. Table 4 (p.73) shows that the task-related attributes of the reflecting stage exist and details examples of these attributes in practice.
Assumption analysis In general, directors believed they test assumptions “as a matter of course, that’s sort of part of the job”, referring to testing assumptions regarding information provided by management. For example, one director observed the need to question what is on the board agenda “because what’s on the agenda might not be what we actually need to
72 THE REVIEW SEPTEMBER 2022
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