Despite significant progress in implementing the Consumer Duty, a fundamental question remains: Have we overlooked the link between our clients and their sustainability goals? Consumer attitudes towards sustainability are changing, shifting towards a more cost-conscious approach. The Duty is poised to become a driving force, empowering consumers to instigate change and demand affordable products and services that are designed to meet their sustainability objectives. Are firms prepared for this challenge, and have they trained their staff ready to understand these changing consumer needs in order to take the Duty to the next level?

Understanding sustainable preferences

Sustainability preferences aren't new, certainly in the realm of advisors who will be well versed on ESMA suitability assessments. However, firms not in advisory roles may lack insights. Firms have mapped product lifecycles and client journeys under the Duty, and while these maps are the foundation of understanding good outcomes, what actually constitutes a good outcome when clients have different sustainability preference profiles to satisfy? Have firms missed an opportunity to design products and services that align with these needs?

The role of FCA Sustainability Disclosure Requirements (SDR)

The upcoming FCA Sustainability Disclosure Requirements (SDR) will enhance clarity and transparency, aligning consumer needs with sustainability outcomes. SDR will bolster and hang neatly on the Consumer Duty Outcomes with emphasis on Products and Services and Consumer Understanding. Firms must help clients meet their objectives as consumers become more aware of their influence in driving sustainable change. SDR will certainly shine a light on clearer insights.

How can firms build on Consumer Duty foundations?

Client-centred sustainability segmentation

The Duty has required firms to apply a more granular and sophisticated approach to segmentation, primarily to pick up on vulnerable customer groups and those more likely to demonstrate characteristics of vulnerability. To measure sustainable outcomes effectively, segment clients based on their sustainability preferences, behaviours and time horizons. Consider groups like these:

• Long-term visionaries: Which of your clients are deeply passionate about driving change and have the patience (and years ahead of them) to invest for the long term? These individuals are enthusiastic about contributing to a sustainable future and are willing to commit over an extended time horizon.

• Aspirational environmentalist: Are there clients who aspire to be more environmentally conscious but lack a clear understanding of how your firm and their financial decisions can support these aspirations and objectives? These clients may be looking for additional guidance on understanding and assessing the risks along their sustainability journey.

• Shorter-term do gooders: Are there individuals with shorter financial return horizons e.g. from the older age bracket, who appreciate the importance of doing good but grapple with building in a long-term view when their personal horizon is shorter? These clients may seek guidance on how to align their short-term financial goals with their values.

• ESG profit seekers: This segment comprises individuals who are primarily motivated by financial gains within the rapidly growing ESG investing space, are open to a diverse range of ESG investments and adopt a long-term perspective. They actively seek profitable opportunities while aligning their investments with sustainable activities.

Supporting sustainable engagement

Educate customers on the sustainability landscape and the importance of sustainability in financial decisions. Support your customers in meeting their sustainability objectives by creating a strategy that informs them about sustainability benefits, risks and opportunities across different time horizons.

Assess customers' understanding of these concepts and how they can be applied to their financial objectives. Offer transparency in your sustainability assessment processes including portfolio creation and valuations.

Sustainable value for money

One of the biggest challenges firms have faced under the Duty is measuring price and value outcomes, however, how does this translate in the more complex arena of sustainable finance? Consider these strategies:

• Broadened metrics

  Develop new metrics that consider the broader benefits of sustainability in achieving client financial objectives. Go beyond traditional financial metrics to assess the value and benefits derived from sustainability initiatives.

  
  

• Widened sustainability proposition

  Widen your sustainable investment advice proposition to add value for clients.

  
  

• Green up shorter time horizons

  Clients with shorter time horizons may need reassurance that their investments align with their values amid industry transitions.

In conclusion, measuring Consumer Duty Outcomes with a sustainable finance lens is multifaceted. Are staff trained and equipped to gain a deeper understanding of clients' sustainability preferences, able to segment clients based on evolving behaviours and sustainable financial objectives, and align these offerings with varying time horizons? Firms can build lasting client relationships and contribute to a more sustainable financial landscape.

Author Bio: Zoe Keen is a highly experienced finance professional with over 20 years of expertise in Investment Banking Compliance. Currently a Senior Consultant at Leaman Crellin, Zoe focuses on regulatory consulting and training, specialising in Sustainable Finance and Consumer Duty. Leaman Crellin is a consultancy firm that excels in providing regulatory consulting and training services to financial institutions. With a team of experienced professionals, including Zoe Keen, the company assists in navigating complex regulatory environments, designing effective governance and risk frameworks, and ensuring compliance with relevant regulations and policies. Their expertise and dedication to Consumer Duty and sustainability issues position them as a key player in guiding financial institutions toward more responsible and ethical practices.