Continuing our series of insights from senior industry figures, the Global Bank Review speaks with Mikel Garcia-Prieto Arrabal, Director General of sustainability pioneer Triodos Bank España. Mikel shares his views on how climate change and rising social obligations are impacting banks and how finance will tackle ESG through the 2020s.

This article is part of our 2021 Global Bank Review – ESG: Creating a purposeful future, an annual publication by our Global Banks Sector Group which brings together our people who live and breathe banks.

How have attitudes and policies in banking changed over the last three years with regards to ESG?

There is a very big step in policies. ESG has brought a big impact from Europe, all these regulations coming. That created a different attitude in the sector. There is now an acceptance that this is part of our job to include ESG in the way we manage finance. That attitude has changed a lot.

What led to that change in attitude?

The most relevant accelerator has been regulation. What happened in 2015 when Paris and the [United Nations' Sustainable Development Goals] started, was to create awareness and debate. But change didn’t come until regulation was stepping in. We needed the regulation in finance to make ESG more applicable.

How has Covid-19 affected the ESG agenda?

There is a very polar reaction. On one hand, the economic challenge of Covid slowed change. There was a focus on solving immediate problems but it was not easy to manage with a long-term view that comes with ESG. On the other hand, we had relevant facts showing the things we thought could happen are happening and some acceptance that how we treat nature can turn into a situation like the pandemic.

When you think about the risks or challenges with ESG, what concerns you the most?

The main risk is not taking it seriously. We need to reconnect finance with society, there is now a chance with ESG to go through that process. Taking it seriously means it’s a full part of the business, not just a product or a business line.

How are you expecting banking to respond to ESG in the next two-to-three years?

I have serious questions about what will be stronger, the need for change or the need to stay where we are now. Regulation [will be key] but also how many serious commitments there are from CEOs because the next three years is where the decision of delaying the change looks like it could happen. That’s the biggest question on the table for the next three years.

What are the priorities for Triodos in approaching ESG?

Essentially, it's an intrinsic part of how we approach finance. This is the key element: we go for impact with an acceptable return, but the core is to get the positive impact for society. It's not, "How do I get a good profit with a decent impact?" It’s, "How do I get a strong impact with a reasonable return?" [We see] the role of finance is to serve society. We were born with a social purpose as our goal and the financial sector is now making that switch or deciding if they want to make that switch.

How much impact will the EU Taxonomy have?

A huge impact. It’s the first harmonisation for all and that’s very powerful. Of course, it can be improved but the step is already huge that you start classifying your activities as sustainable or not and that’s a common language that allows for all kinds of building blocks on top of the Taxonomy. It's a very big step and will be a good accelerator.

Will the wider EU Green Deal be effective at driving harmonisation?

At the European level it will, of course, and we see it in Spain, where it is creating a direction business looks at. It’s a very successful policy because it’s creating a new trend. That’s also part of the discussion in finance, that if the sector needs to change they need some comfort that this is a long-term direction that is supported by all. The Green Deal is a framework that gives you this comfort.

How much momentum are you expecting in sustainable investing and lending in the next three years?

There is a boom in these investments and lending and there is a lot of energy transition opportunity. That is a big opportunity. What creates the big challenge is what happens to what is not green? Also, on the social side, how to make all these changes that improve the life for all. We have sufficient proof now that if that does not happen, even if it’s green and good business, if the social side is not there, sooner or later it creates social conflict. Green is fine but only green will not be sufficient.

If you were giving advice to peers on how to tackle ESG, what would be your key messages?

Many times we talk about risk and when you consider risk, you are already in the defensive mode rather than talking about having impact. Impact is where the opportunity becomes real. We need to look for the opportunity for the future rather than this risk management perspective because it creates enthusiasm for the people working on it, it creates social acceptance.

What are your big predictions for how finance will evolve in ESG during the 2020s?

They will evolve towards growing on ESG, I have no doubt. The learning of the last two years is already embedded. The challenge is to do it at a good rhythm. We have the awareness, now do we have the second step of creating a credible strategy? That’s something we need to work out in the next year or two: how far we want to go by 2030.

Any final thoughts?

There is a big question about all these greenwashing claims. It might take away the credibility and opportunity of this moment. We are not taking sufficiently seriously how transparent we want to be with this green agenda. All stakeholders need to be more demanding on a good, transparent way to engage with ESG. Greenwashing will be a big issue if the whole movement lacks credibility.