SustainAbility: The financials sector: Angel or Villain?

Few sectors polarise opinion in sustainable investing like financials. Is it the angel that enables inclusive growth and economic stability – or the villain, financing fossil fuels and lagging on environmental, social and governance (ESG) practices? The reality however is more nuanced.

In this blog we look at how the sector contributes to sustainable outcomes, the risks it poses and why we believe the bottom-up lens adopted by our sustainable fund range is essential to separating the angels from the villains.

Sustainability progress and contribution

The financials sector, which spans banks, insurers, consumer finance and data providers, plays a foundational role in shaping a more sustainable economy. While some institutions have historically played the villain – funding carbon-intensive industries or failing on governance – many are now stepping into the role of enablers of progress.

The financials sector, which spans banks, insurers, consumer finance and data providers, plays a foundational role in shaping a more sustainable economy.

Banks and consumer finance companies expand access to credit and financial literacy, especially for underserved populations and SMEs, promoting inclusion and upward mobility. Insurers support resilience through protection against health and climate-related risks. Exchanges and data providers enhance transparency and governance, helping investors make informed decisions.

Over the past decade, ESG integration has accelerated. Regulatory reforms and shareholder activism have strengthened governance. Climate risk disclosures and net zero commitments are now mainstream, and institutions are improving transparency around diversity, inclusion, and community impact. In our view, these shifts have elevated ESG from just ‘compliance’ to a strategic priority, with many companies in the financials sector now actively contributing to sustainable outcomes.

Return potential has structurally shifted

Despite its mixed reputation, we believe the financials sector presents compelling return potential with supportive macro conditions: easing interest rates, resilient economy and attractive valuations.

Banks, having benefited from higher rates, continue to gain from a steep yield curve, digital innovation, and expanding credit demand. Many offer attractive yields, with solid capital ratios and improving profitability. Insurers, particularly in property & casualty, show resilience through disciplined underwriting and climate risk integration. Consumer finance companies leverage fintech and targeted lending to drive growth. Capital markets support ESG infrastructure and capital flows into sustainable areas.

Financials are no longer just defensive – the sector is increasingly a source of growth, value, and durable returns.

The scrutiny of banks and why bottom-up matters

In a sector as diverse and polarising as financials, we believe that a bottom-up approach is essential.

Banks, in particular, are often viewed as villains due to their legacy of financed emissions and governance failures. The scars of the 2008 crisis – liquidity shortfalls, excessive risk-taking, AML (anti-money laundering) failures, and weak oversight – remain fresh to many. Since then, regulatory reforms have tightened oversight, improving capital strength, governance, and transparency. Many banks now play a leading role in financing the low-carbon transition and promoting financial inclusion. However, ESG standards still vary widely, making company-level analysis essential to identifying those truly contributing to sustainable progress.

Many banks now play a leading role in financing the low-carbon transition and promoting financial inclusion.

The sector also carries inherent risks. Financials are sensitive to macroeconomic cycles, regulatory shifts, and credit dynamics. Banks face interest rate volatility and loan defaults; insurers contend with underwriting and catastrophe exposure. Reputational failures—such as compliance breaches or ESG controversies—can quickly erode investor confidence.

Top-down generalisations fail to capture this complexity. A bottom-up approach – as used by our sustainable fund range – enables nuanced analysis of fundamentals, ESG integration, and strategic positioning. It helps investors distinguish the angels—those delivering sustainable outcomes and financial strength—from the villains still lagging behind. In practice, we believe that most banks today are somewhere in between, helped by factors such as embedding sustainability across lending and advisory services, or focusing on financial inclusion through rural and digital banking.

Final thoughts

The financials sector contains both angels and villains. Some institutions are driving real-world impact and delivering strong returns; others remain behind the curve. Its complexity demands more than broad generalisations.

We believe that our bottom-up approach adopted in our sustainable fund range is essential to distinguish high-quality sustainable businesses from those falling short—and to identify long-term winners in both sustainable performance and (therefore) financial returns.

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.