ESG as a Business Opportunity
ESG as a Business Opportunity
How banks can capitalize on the net zero transition business opportunity
Global banks are going green. ESG as a business opportunity is A&M’s perspective to evaluate revenue growth opportunities for banks in their journey to accompany clients toward net zero transition. Competition is high, and client win rate and margin protection are at stake.
Banks are moving from playing defence in ESG, — that is, complying with regulatory, investor and rating agency expectations — to playing offence. Maximizing financial benefits from ESG in a highly competitive environment requires:
- Deploying a broad and sound offering of sustainable finance and investing products.
- Articulating credible net zero plans for emissions financed.
- Adopting a client orientation to transition planning, assisting them with analytics, insights and end-to-end solutions.
- Accompanying clients in the operational execution of transition plans fully embracing innovation and digitalisation. This document introduces a framework for banks to maximize the ESG business opportunity, identifies sustainable finance revenue pools and displays examples of a wide range of leading industry initiatives emerging in the space.
This report aims to provide bank leaders with a framework to size and capitalize on the ESG business opportunity when assisting clients through their net zero transition journey. Winning banks will require to apply the GREEN PACE formula introduced in this report. Some of the report highlights include:
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Capitalizing on the ESG opportunity will require banks to bravely combine multiple capabilities to connect supply of bank services with demand for corporate transition solutions. We call the winning formula GREEN PACE, with four attributes that will define the winners in sustainability. 1. Green Products, 2. Alignment to Net Zero, 3. Client Orientation and Insights and 4. Execution. Based on publicly available information, A&M has developed a scorecard of GREEN PACE across 25 top global banks.
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Top 25 European and U.S. banks have committed €13 Trillion of sustainable finance targets by 2030. 4 top US banks account for $5,5 Trillion while 17 European banks have targets for €7,3 Trillion. Annualised target levels amount €1,3 Trillion. This compares with UN estimates that quantify the gap in funding needed to achieve the SDGs by 2030 at USD 2.5 trillion to USD 3 trillion annually. 2030 sustainable finance targets represent in average 37% of total bank assets.
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ESG revenue pools for the next decade could amount up to €293bn for the financial services Industry. Revenue pool breakdown by region shows that Europe and North America will represent 46% or €135 Bn, driven by more ambitious pledges by 2030 than Asian Countries and a 10% uplift in actual total revenues.
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A&M has conducted benchmarking of disclosed bank net zero targets. Most banks have committed to exit phase out coal financing in EU/OECD by 2030 and worldwide by 2040 with a handful of banks committing to earlier exits. Oil and Gas and Power targets have been set by the majority of the banks using absolute emission and emission intensity goals, respectively. Coverage across industry, real estate and transportation portfolios is limited. We share detailed net zero target benchmarking for selected 9 sectors across US and European banks.
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Banks that want to maximize the ESG business opportunity must deepen their client relationships. We call it ESG Client Orientation and Insights. We share a wide range of leading practices in this area.
- Lastly, we share emerging innovative ideas that combine digital platforms, partnerships and marketplaces to accompany clients throughout the execution of their transition process.
