The ESG (Environmental, Social, and Governance) framework has become increasingly important in financial services as investors, clients and consumers demand more transparency and accountability from companies with regards to their environmental and social impact. ESG criteria are used, for example, to help investors make informed decisions that align with their values and long-term goals.
Embracing sustainability in the debt collection business is not just a matter of ethics, but a smart business move. Operators that commit to ESG principles are likely to enjoy enhanced reputations, reduced regulatory risk, and improved relationships with debtors, clients, and employees.
According to Eddy Kjær, Director, Debt Collection at Finance Norway, ESG has become one of the most discussed topics on the agenda of industry operators. As the trade and employers’ association for the financial industry in Norway, Finance Norway represents about 70 per cent of the companies on the local market.
– I think that historically speaking the debt collection business hasn’t had an especially positive public image, and there is still a lot of work to be done in building up the industry’s reputation regarding ethics and responsibility. That’s one of the reasons that the most emphasis by far is currently placed on developing practices related to social responsibility, which is at the core of the business, Kjær says.
He adds that this is still very much a work in progress and there is a lot of variation between Norwegian companies on how they have managed to adapt their business models to social sustainability requirements.
According to Eddy Kjær, Director, Debt Collection at Finance Norway, ESG has become one of the most discussed topics on the agenda of industry operators.
Increasing expectations from society
The financial sector, including debt collection, already operates in a highly regulated and accountable environment where competitive pressures from clients and creditors drive standards of professionalism and quality that often include good ESG practices. But while both managing a company’s environmental impact and running a business according to good governance and effective risk management are essential requirements, regulation concerning social responsibility is not as developed.
– Requirements for reporting social responsibility are not as specific but they are becoming more standardised. Also, society in general expects companies to take a more prominent role in social development. It will be interesting to see if debt collection companies can turn this into a competitive advantage, as demonstrating a commitment also to social responsibility will most likely help to attract ethical investors and clients who want to align themselves with organisations that share their values, Kjær points out.
He reminds of the fact that the debt collection business is mostly based on quite straightforward and simple cases, with customers paying relatively small amounts after being reminded of the debt. The bigger question is how to avoid unnecessary harm for those in more demanding and vulnerable situations.
– This concerns about 5 to 10 per cent of customers, who are typically in challenging life situations or crises that can cause major financial difficulties. While we cannot be personal advisors as such, there is a lot that the industry is doing in helping customers with their financial wellbeing by listening and providing flexible options and solutions, Kjær notes.
Making a positive impact
Lowell published its second annual sustainability report this year, detailing activities and progress during 2022. The company mission – Making credit work better for all – recognises the broader impact that Lowell has on people’s lives, beyond business activities. According to Carol Ord, Head of Sustainability at Lowell, sustainability has always been part of the corporate DNA, but the company hasn’t previously communicated much about the topic externally.
According to Carol Ord, Head of Sustainability at Lowell, sustainability has always been part of the corporate DNA.
– We haven’t necessarily badged our work separately as ESG before because sustainability is embedded in everything we do. The main drivers for carrying out more systematic reporting were that we recognised the opportunity to differentiate Lowell through our ESG work and that our clients and investors wanted further reassurance of socially responsible and ethical practices in managing our impacts. Also, being positioned as an organisation with a strong social purpose is an increasingly important factor when attracting and recruiting new talent, Ord notes.
She says that when creating the company’s sustainability strategy, the focus was on business priorities and future aspirations, which helped to identify areas with the biggest impact. These include providing supportive and personalised debt resolution for customers, setting the highest ethical standards and building a positive sector, and putting people first to build a stronger business and society. Underpinning all this is a resilient and efficient business that supports a low carbon world.
– I think that especially the social responsibility elements are at the core of our business. This is also the area where we as a company can really stand out by, for example, delivering innovative tools and services that help customers better understand and manage their finances.
ESG embedded in the business
Considering the risks of not implementing ESG practices properly, Ord stresses the damage caused to a company brand and reputation, making it increasingly difficult to attract talent or new investments. Companies should also prepare well in advance for upcoming changes and stricter requirements in legislation and regulations so that they don’t lag behind of the competition.
– For example, the Corporate Sustainability Reporting Directive, CSRD, is coming into effect for larger companies next year. It includes further requirements on reporting material topics and value chain emissions, and sharing a climate transition plan, Ord explains.
In her view, the most important thing to consider when developing ESG is to make it relevant for your business. Then it’s not extra work but concerns things that you are already doing.
– When taking a more systematic look at a company’s impacts, most discover that they are already working on a lot of things related to ESG, even though they may claim not to have even started. Carrying out both an internal and external review will help to understand the business and related frameworks, standards and metrics. At least with the companies that I’ve spoken to, this has usually led to the pleasant discovery of being in a much better starting point than they initially assumed, Ord concludes.
