How the financial services industry in South-east Asia can reimagine business and talent strategies in 2022

After 12 months characterised by volatility, in the wake of the ongoing pandemic and China-United States tussle, it's already clear that 2022 will be another year of disruption and uncertainty in South-east Asia. It will also present the region's financial institutions with bold opportunities to reinvent strategy, reimagine work and reshape business models.

As my team and I meet with the CEOs and leaders of banking, insurance, wealth and asset management companies in the region to discuss their plans for 2022, there are three main areas:

1. Make green finance central to client and growth strategy

This year, climate change will be at the top of the risk agenda for the region's financial services boards. Asia accounts for more than half of global greenhouse emissions and it's also disproportionately exposed to the physical impact of climate change. According to scenario modelling by the Swiss Re Institute, South-east Asian countries could lose 37.4 per cent of their current gross domestic product (GDP) by 2048 if no action is taken on climate change.

As we heard at COP26, addressing the green power gap by building clean energy infrastructure is a central challenge for our region. Reducing emissions will require massive investment to increase South-east Asia's renewable energy and storage capacity. As part of Budget 2022, the Singapore government announced its aim to issue up to S$35 billion of green bonds by 2030 to fund public sector green infrastructure projects, as well as to publish a Singapore Green Bond Framework.

Currently, while the sustainable investing market is growing rapidly around the world, it is doing so inequitably. Infrastructure is the backbone of South-east Asia's economic growth, but our region faces an investment shortfall of more than US$100 billion (approximately S$135 billion) a year. To plug this gap, private capital must play a much larger role in financing clean infrastructure projects.

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This year, we can expect ongoing regulatory change to support the rise of a new South-east Asia green investment market - building on Singapore Budget 2022 and the Singapore's Green Finance Action Plan. Last year, Indonesia's financial regulator set up a sustainable finance task force to develop the country's sustainable finance ecosystem. In Malaysia, a new capital market masterplan is focusing on the use of sustainability-related factors in investment decision processes, transparency of environmental, social and governance (ESG) data providers, as well as disclosures and governance among credit and ESG ratings agencies.

At the same time, we will see ever-increasing government, consumer and investor pressure on businesses to divest high carbon assets, acquire green technology, publish and track progress on their step to net zero. In order to achieve net zero emissions by mid-century, the Singapore government will raise carbon tax progressively - it will be S$50 to S$80 per tonne by 2030.

"With the coming increase in carbon taxes in 2024, businesses will need to ensure that the necessary steps are taken to pivot towards a low carbon and energy-efficient solution," says Ms Amy Ang, EY Asia-Pacific Financial Services Tax Leader.

For financial services, the accelerating demand for carbon transition finance (precipitating both carbon savings and excellent returns), climate risk insurance and sustainable investments, will be a game changer. We'd like to see the banks, insurers and asset managers collaborate to map investment needs, channel capital into sustainable initiatives and support their clients to achieve their net-zero ambitions.

Also, because sustainability data will need to be produced with the same rigour, quality, global comparability and assurance as financial data, financial services institutions will have a role in assisting business customers to be transparent, accurate and timely with their carbon reporting.

2. Reimagine the employee experience

The pandemic has forced all businesses to embrace workforce agility and focus on new kinds of business continuity and resilience strategies. EY 2021 Work Reimagined Employee Survey found South-east Asia employees wanting to work anywhere (32 per cent), work remotely (29 per cent) or hybrid work arrangements (23 per cent). Nine in 10 employees want flexibility in where and when they work. Notably, three in five would consider leaving their jobs if these options aren't available after the pandemic.

As new Covid-19 variants continue to emerge this year, institutions will need to manage a dual workforce of on- and off-site workers, with staff empowered to transition to new ways of working at a moment's notice. Apart from the technology needed to ensure a seamless employee experience, this will also require a focus on fairness to diffuse the inevitable "us and them" mentality.

It's never been more important for leaders to build a culture of belonging with a shared, resonant purpose at the forefront of strategy. They must also proactively support workers whose traditional roles are being automated to upskill and take on higher value activities.

"The workforce of the insurer needs to be reimagined and changed. While traditional skills in risk management, actuarial and finance continue to be critical, marrying the power of people and technology will be a vital ingredient for a successful insurance enterprise of the future," says Mr Brandon Bruce, EY Asean Insurance Leader.

In this environment, D&I (diversity and inclusiveness) must expand to become DE&I - where the "E" stands for "equity". This represents equity of experience, equity of opportunity and equity of reward.

A key lesson from the pandemic is how easy it is for businesses and markets to become disassociated from their employees and customers. Institutions must remember that, ultimately, they rely on the ingenuity, hard work and loyalty of real people.

To both retain scarce talent and support their social licence to operate, institutions must redesign their employee value propositions to provide a fertile environment for career development, a competitive compensation package and a strong emphasis on well-being, spearheaded by empathetic leadership.

3. Enable hyper-personalisation, empower your customers

Many of South-east Asia's banks have been cautious during the pandemic, resulting in increasingly commoditised products and services. No wonder our latest Global Consumer Banking Survey found that 35 per cent of Asia-Pacific consumers have relationships with neobanks - by far the highest rate of adoption in any region in the world.

Our region's consumers are becoming highly sophisticated, with new generations especially expecting a seamless integration of financial services into their daily lives. EY surveys of South-east Asia's wealth and banking consumers, including small businesses, all highlight growing demand for a slick experience that integrates all their financial services across providers as well as extend to non-financial offerings.

"EY research shows that Singaporean consumers particularly value personalisation that helps maximise functional benefits linked to products, such as loyalty programmes. Other valued personalised experiences include communications that show their provider knows them, the right product offers at the right time and the ability to customise products. Respondents say such offers would motivate them to expand their relationship with their preferred financial providers," says Mr Andrew Gilder, EY Asia-Pacific Banking and Capital Markets Leader.

To meet this need, institutions must shift from product-focused delivery and look at customer journeys from a human-centric perspective - understanding that personalised experiences drive consumption. It's not about banks selling consumers a generic mortgage or a motor loan, but providing people with the right finance at the right time to purchase their home or car.

The starting point is to automate and realign workflows. But this is not just about streamlining onboarding and accelerating decision-making. Institutions will also need to employ hyper-personalisation to serve customers' requirements and address financial pain-points.

It's time to use big data analytics on transactional and behavioural information to enhance segmentation, provide tailored value propositions, and deliver the right levels and types of engagement.

Incumbents also have a significant opportunity to be the unifying point for consumers' multiple financial relationships via a super app - especially given their trust advantage when it comes to protecting personal data.

Unshackling from legacy systems has become critical in 2022

While the focus of the above three changes is about people, their enabling force is technology. Intelligent automation, artificial intelligence, analytics, blockchain and super apps will all be needed to support new business strategies.

We therefore expect that 2022 will be the last year where financial services incumbents can continue to rely on legacy systems.

To remain relevant, institutions have no option but to embrace digital transformation - building, buying, or collaborating with fintechs to rapidly develop agile operating models with automated workflows supported by rich data insights.

Futurists predict that three-quarters of the industry's larger enterprises in the S&P500 could be displaced in the next five years. The urgency of this transformation cannot be overstated. Those who hesitate will not survive.

Place purpose at the centre of your firm

To identify and seize the opportunities of 2022, leaders must ensure their strategy and transformation plans are conceived together, so design and delivery inform each other at every stage - and employee well-being is factored in as an ongoing priority. They must embed environmental responsibility as a critical component of their business operations and reframe sustainability as a value-driving innovation opportunity. And they must put purpose at the centre of their organisations, demonstrating authenticity by tangibly measuring its impact on all stakeholders.

This is what's needed to create the high-performing financial services industry that will be essential to support a green recovery in our region.

This article was written by Mr Brian Thung, EY Asean Financial Services Leader.

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The views reflected in this article are those of the author and do not necessarily reflect the views of the global EY organisation or its member firms.