ESG revenue pools for global banks ‘will reach $286 billion’

Environmental, social and governance (ESG) revenues for the next decade could amount to 295 billion euros ($286 billion) for the global banking sector.

NatWest tops the list of European and US banks capitalizing on net-zero transition opportunities, said global professional services firm, Alvarez & Marsal (A&M), which released the results of the inaugural Green PACE ranking, a research exclusive that ranks how the top 25 European and North American banks are capitalizing on sustainability as a business opportunity.

Alvarez & Marsal’s analysis indicates that UK banks are outperforming their European and US counterparts in the transition to net zero.

Today, global banks meet the expectations of regulators, investors and rating agencies when they go green. To maximize the financial benefits of ESG in a highly competitive environment, banks will need to deploy a broad offering of sustainable finance and investment products, and articulate credible net zero plans for funded emissions. They will also need to adopt a customer focus to plan for the transition and support customers through the operational journey by fully embracing innovation and digitalization.

Ambitious promises

The breakdown of the revenue pool by region shows that Europe and North America will account for 46% of the total revenue pool, or €135 billion, thanks to more ambitious promises by 2030 than Asia. The ESG revenue opportunity represents an additional 10% of current bank revenue in Europe and North America.

The report found that UK banks are outperforming their European and US counterparts on the transition to net zero, with NatWest coming out top of the chart, by a margin of over 10%. The outperformance of UK banks, and NatWest in particular, can be attributed to strong investment and commitment in the capability areas assessed, including green product offering, alignment targets, customer focus and participation in the execution of the transition.

Asad Ahmed, Managing Director of A&M and Head of Financial Services in the Middle East, said: “Regional financial institutions are playing a leading role in integrating ESG into their businesses – both as ‘executing in their own business models, and also as a potential source of income, as they offer sustainable solutions to their customers.Sustainability elements should be fully integrated in banking activities, i.e. in the how banks look at risk, product offerings and how banking operations are managed.

Four attributes

A&M’s Green PACE ranking is based on an assessment of banks’ performance against four attributes that A&M believes will define sustainability winners. These are:

•Green products: A&M examined whether banks offered a wide range of sustainable financial products, including bonds, loans and derivatives for purposes that are both green and sustainable. A&M estimates that the top 25 European and US banks have committed €13 trillion to sustainable finance as targets by 2030, this figure represents 37% of total banking assets or 15% of global GDP.

• Alignment with net zero: A&M benchmarked banks’ net zero goal, including number of portfolios, asset coverage, data quality and internal tools. A&M found that most banks have pledged to phase out coal financing in the EU/OECD by 2030 and globally by 2040, with a handful of banks pledging to phase out earlier. A&M’s benchmarking also shows that US banks have a higher intensity in their oil and gas-funded issuances.

•Customer Focus and Insights: A&M followed transition guidance and analytics linking operational customer transition solutions to financial business case and tailored insights.

• Execution of transition plans: A&M analyzed the involvement of banks in operational execution through investments in climate technologies, innovative joint ventures and digital platforms.

business opportunity

Fernando de la Mora, Managing Director of Alvarez & Marsal, said: “Global banks have recognized that the transition to net zero does not have to be a thorn in their side and is instead a huge business opportunity. Sustainable banking strategies are evolving from being focused on regulation and compliance to a broader range of initiatives that can generate new revenue streams and innovative solutions for customers.

“We see a growing number of financial institutions placing sustainability at the heart of their business priority. Our Green PACE ranking offers banking leaders a new framework to help them leverage ESG as a business opportunity. »– TradeArabia Press Service