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The environmental, social and governance (ESG) revenue pool for the global banking industry could be as high as €295 billion ($286 billion) over the next decade.
Global professional services firm Alvarez & Marsal (A&M) says NatWest ranks among the top European and U.S. banks capitalizing on net-zero transformation opportunities, publishing the findings of the inaugural Green PACE Rankings, a proprietary study of the top 25 European and U.S. banks. Banks in North America are using sustainability as a business opportunity.
Analysis by Alvarez & Marsal shows that UK banks have outperformed their European and US counterparts in the transition to net zero.
Today, global banks are complying with regulatory, investor and rating agency expectations as they go green. Maximizing financial gains from ESG in a competitive environment will require banks to deploy a broad range of sustainable finance and investment products and develop credible net-zero plans for funded emissions. They also need to adopt customer-driven transition planning and accompany customers in their operations by fully embracing innovation and digitalization.
Ambitious commitment
A 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 euros, thanks to more ambitious commitments than Asia by 2030. ESG revenue opportunities represent 10% of current bank revenue in Europe and North America.
The report found that UK banks outperformed their European and US counterparts in the transition to net zero, with NatWest topping the list by more than 10%. The strong performance of UK banks, and NatWest in particular, can be attributed to strong investment and commitment to the assessed capability areas, including green product offerings, retargeting, customer orientation and engagement in transition execution.
Asad Ahmed, Managing Director and Head of Financial Services Middle East, A&M commented: “Regional financial institutions play a leading role in integrating ESG into their operations – both as implementers of their own business models and as potential revenue generators as they serve clients Provide sustainable solutions. Sustainability elements need to be fully integrated into banking – that is, the way banks examine risk, product offerings, and how they operate.”
four properties
A&M’s Green PACE ranking is based on an assessment of bank performance, and A&M believes these four attributes will define sustainability winners. these are:
• Green Products: A&M examines whether banks offer a wide range of sustainable financial products, including bonds, loans and derivatives for green and sustainable linkage purposes. A&M estimates that the top 25 banks in Europe and the US have committed €13 trillion to sustainable finance as a target by 2030, a figure representing 37% of total bank assets or 15% of global GDP.
• Alignment with Net Zero: A&M benchmarked the bank’s net zero target, including portfolio size, asset coverage, data quality and internal tools. A&M found that most banks have committed to phasing out coal financing by 2030 in the EU/OECD and globally by 2040, with a few committing to exit early. The A&M benchmark also shows that U.S. banks’ oil and gas financing is more emissions-intensive.
• Customer Orientation and Insights: A&M tracks transformation recommendations and analytics that connect customer transformation operational solutions with financial business cases and customized insights.
• Execution of transition plans: A&M analyzed banks’ involvement in operational execution through climate technology investments, 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 is not necessarily a thorn in their side, but a huge business opportunity. Sustainable banking strategies are Evolving from regulatory and compliance driven to broader initiatives that can provide clients with new revenue streams and innovative solutions.
“We are seeing more and more financial institutions putting sustainability at the heart of their business priorities. Our Green PACE rankings provide banking leaders with a new framework to help them see ESG as a business opportunity.” – arab trade news agency
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