Joining me now is Dr. Khakan Najaf, Associate Professor of Accounting at Canadian University Dubai. Doctor, welcome to the show.
Thank you so much. Nice to meet you.
Working remotely and online — can fintech companies actually be hacked and exposed to cybersecurity problems more than traditional banks?
I have two papers on this. The first shows that during Covid, the financial performance of fintech companies — measured by return on equity — rose significantly compared to their counterparts. The second shows that banks which adopted sandboxes and pursued digital transformation by partnering with fintechs were more exposed to cyber attacks because of that adoption. So it is twofold — there are pros and cons. The pros are seamless operations even during a crisis. The issue is that cybersecurity becomes a main concern.
Are fintech companies ahead on ESG reporting or are they catching up like everyone else?
They were catching up. Looking at data from 2010 to 2019 — that ten-year period — fintechs were catching up with traditional firms. But now they are far ahead. And the reason comes down to the founders. If you study the corporate governance of fintech companies, you will be surprised to see that most of the founders are retired CEOs of very well-known companies. Because of their experience, they know how to manage ESG, monitor ESG, and report ESG. They have smaller boards but better ones — fewer people, higher quality. I would suggest studying the corporate governance of fintech firms. They are fundamentally very strong.
How do you tell a company that is actually improving its ESG from one that just looks good on paper?
Three or four years ago, accounting standards introduced sustainability reporting standards — S1 and S2. What many companies do to comply is produce a massive integrated report — sometimes 500 pages. Who reads 500 pages? Traditional companies are putting a lot of words into those reports, but most of the commitments are made in the future tense — they will do this, they will do that. Fintechs report in the past tense — they already did it. What traditional companies are promising to do in the future, fintechs have already delivered. And now we have AI that can read all that text in ten minutes and show exactly how many promises were made and how many were fulfilled. So far, fintechs have delivered on whatever they promised in their sustainability reports.
What does your research say a founder should actually be doing to build ESG from day one?
You need to monitor, you need to manage, and you need to report. Monitor where you stand on ESG. Manage the culture of the organisation — structure really matters. And report to get the trust of your shareholders. Many organisations think spending money on ESG will cost too much. But on the other side, the market value of those companies that do not invest in ESG is getting very low — they are losing far more in the market than what they would have spent. If you look at Europe, they are far ahead of us when it comes to sustainability. Those investors and shareholders really understand the value of sustainability for their future and their children's future. They will invest in a company even if it is performing poorly on financial metrics, as long as it is well-governed and environmentally responsible.
Thank you so much Doctor Khakan. Excellent insight today.
Feel free to come by — we are neighbours here at the university. Nice to meet you.
