ESG (Environmental, Social, and Governance) in Financial Services – Thematic Research

Powered by

All the vital news, analysis, and commentary curated by our industry experts.

The global pandemic has arguably done more for ESG awareness than it did for digital adoption. A dual health and economic crisis, in which the fate of individuals was dependent on how other people behaved, created a heightened sense of togetherness. This was visible not only in terms of virus transmission but economically, as banks realized that only by helping customers survive the crisis could they help themselves repair balance sheets. However, ESG remains highly problematic from a strategy and execution perspective. It is an initiative as complex and all-encompassing as the entire digital transformation project itself. In the context of bank financing, institutions can have very different starting points, with portfolios exposed to various risks, making it difficult to determine a baseline for success.

What are the main trends shaping the ESG theme in the financial services sector?

Technology trends

ESG-focused robo platforms use machine learning (ML) algorithms to guide investors towards suitable investments, typically exchange-traded funds (ETFs) that bundle securities into themed and lower-risk instruments in which risk is hedged across a portfolio. Sustainable ETFs have grown in popularity due to specialist robo-advisors, such as EarthSimple10, that deal exclusively in sustainable ETFs. By making it easier for individuals to invest in accordance with their values and preferences, the total amount of capital available for sustainable development goals (SDGs) may increase significantly.

Banks and technology vendors are re-purposing digital money management (DMM) capabilities to optimize financial wellness goals and ESG impact. DMM vendor Meniga now offers climate change impact insight. Doconomy in Sweden, a partner of Mastercard, helps users track and measure the CO2 emissions associated with their purchases – enabling them to limit the climate impact of their spending through climate savings, climate compensation, sustainable investments, and climate refunds from partner brands. Just as we had traceability in supply chains for fair trade, we are now moving toward traceability in money.

Given the pace and scale of ESG-led change, banks are strategically deploying fintech eco-systems to drive sustainability in their products and operations. This overall category of fintech is often referred to as Sustainable Digital Finance (SDF). It subsumes mobile payments platforms, crowdfunding, big data, artificial intelligence (AI), blockchain, digital tokens, and the internet of things (IoT), to help providers, directly and indirectly, support the targets set in the UN’s SDGs.

Macroeconomic trends

The COVID-19 pandemic has changed what matters to customers. The experience of a dual health and economic crisis, in which the fate of individuals was dependent on how other people behaved, created a heightened sense of togetherness. In particular, the size of the economic disruption reminded retail banks that they were “in this together” with their customers. Resorting to fees or penalties would have pushed even more customers into the red and devastated loan loss provisions further. Instead, enlightened self-interest – buttressed by government regulation – saw banks focus on helping their customers improve financial resilience, perhaps for the first time.

Perhaps the biggest single driver of sustainability is not the need for action now but a generation that will soon represent 75% of all accounts and purchases and receive an estimated $30 trillion wealth transfer from Baby Boomers over the next 30 years. These individuals are more interested in purpose than profits, or so they say on their placards and banners. Younger customers are not just demanding cheaper, faster, and more convenient ways of managing their finances (i.e., what powered the fintech revolution) – they also care about a company’s moral, social, and political values and want brands they affiliate with to align with their own beliefs.

Banking has a greater need for reputational rehabilitation than almost any industry, bar perhaps defense. But, unlike defense, banks must achieve that rehabilitation while under attack from new entrants. Sticking points include the industry’s role in causing the global financial crisis through a bonus culture that rewarded greed and its ability to privatize gains and socialize losses with bailout packages but no meaningful change (or at least, that is the perception of many observers and consumers).

What are the ESG challenges in the financial services sector?

Environmental challenges

Most banks have significant books of business wrapped up in loans and instruments to ‘brown’ assets. As long as those brown assets continue to generate profits for the bank, bank executives will need to balance their duty to finance the ESG transition against their fiduciary duties to shareholders. There are also various unintended social consequences to environmental moves. Declining to renew loans on existing coal mines, for example, may improve a bank’s carbon disclosures, but it could lead to significant social implications as mines close and unemployment grows (which, in turn, would have a massive impact on that market’s retail lending and potential impairments). Having the experience, insight, and data to map all those potential consequences is proving to be a challenge.

Banks are key decision-makers that influence the entire economy with their funding decisions. If banks choose to cut off financing to a particular company or industry, they will struggle immensely. This makes banks responsible for ensuring that their investments promote positive values. Oil and gas companies have high capital and operational expenses. To meet these financial demands, they turn to banks for financing, which banks are happy to do as they can provide very large loans with very little risk.

Social challenges

Banks must have good visibility over the practices of the companies that they invest in, especially when those companies sit outside of the bank’s home country, where regulations may differ, and oversight may be more restricted. This is to ensure that human rights are not abused due to a bank’s investment. One of the most common areas in which human rights violations occur is the use of child or forced labor in manufacturing processes. It is the responsibility of banks to undertake extensive due diligence on their investment holdings to ensure that no human rights violations are taking place across any part of that firm’s value chain. This may even extend to external firms that provide inputs for companies and have no direct relationship with the bank.

Discriminatory practices also manifest in credit risk methodologies built up over decades that consider these same groups (women, ethnic groups etc.) as higher risks, as historically they have earned less across their lifetime or not worked at all. Such financial exclusion also plays out for SMEs, particularly rural SMEs in developing markets, which are typically much harder to assess from a credit perspective using traditional data points and techniques. Including these groups is not just ethical but is mandated by regulation in many markets (such as the Financial Services Charter in South Africa, or financial inclusion as part of the UN’s Millennium Development Goals) – but it is also a clear commercial opportunity.

Governance challenges

Following a string of scandals and the 2008 financial crisis, the public has a very negative view of banks and their corporate culture and structure. Banks have long had unjustifiable remuneration for top-level executives, although this is one of the main drivers incentivizing people to enter the industry. These pay packages and bonuses are not necessarily tied to output, as we saw following the 2008 financial crisis when banks almost single-handedly tanked the global economy, yet many bankers still received their bonuses.

Regulators still want more clawbacks, which allow bonuses to be recouped if investments go sour or wrongdoing is later discovered. EU banks live under a tougher regime after Brussels-based lawmakers banned bonuses of more than twice fixed salaries starting in 2016. However, success has been mixed. For example, Barclays has reasonable ESG credentials but was desperate to avoid a state bailout so it could continue paying huge bonuses to staff, according to board minutes recorded during the financial crisis. Bosses feared ministers would restrain pay, fueling an exodus of top staff.

Which are the leading companies focusing on ESG theme in financial services sector?

Major financial services companies focused on ESG include TriodosBank, ING, USSA, Navy Federal, Citigroup and Goldman Sachs.

Market report scope

Outlook Year 2021
Companies Mentioned Bank of America, Barclays, BBVA, BlackRock, Citibank, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan, JPMorgan Chase, Morgan Stanley, Santander, Tandem, USAA, Wells Fargo, and Wirecard

This report provides an in-depth analysis of the following:

  • Several tech trends are shaping ESG in the financial services industry, including artificial intelligence, cloud, and robo-advice.
  • Customers are increasingly expecting their financial services providers to display sustainable credentials.
  • Companies must take a holistic approach to sustainability that addresses all three of its major aspects: environmental, social, and governance. GlobalData’s ESG Framework helps clients build trust with society and set them on a path forward toward sustainable success for their companies and the planet.

Reasons to Buy

  • This report is crucial to understand how ESG is changing and will continue to change the financial services industry. It will allow you to identify trends and track competitor activity in the ESG theme.
  • Benchmark your ESG strategy against competitors in the sector via access to several examples of successful sustainability initiatives across each of the E, S, and G categories.
  • Identify areas in which to prioritize ESG investment using our comprehensive analysis of the most important ESG challenges facing the financial services industry and best practice approaches to mitigate these risks. Staying abreast of emerging ESG trends in the sector will help improve your sustainability credentials.

Bank of America
Barclays
BBVA
BlackRock
Citibank
Citigroup
Deutsche Bank
Goldman Sachs
HSBC
J.P. Morgan
JPMorgan Chase
Morgan Stanley
Santander
Tandem
USAA
Wells Fargo
Wirecard


Table of Contents

Executive summary

GlobalData’s ESG framework

Trends

The ESG action feedback loop

ESG challenges in financial services

Case studies

ESG timeline

Companies

Sector scorecard

Glossary

Further reading

| Our thematic research methodology

| About GlobalData

| Contact Us

Frequently asked questions

ESG (Environmental, Social, and Governance) in Financial Services – Thematic Research thematic reports
Currency USD
$695

Can be used by individual purchaser only

$1,495

Can be shared globally by unlimited users within the purchasing corporation e.g. all employees of a single company


Undecided about purchasing this report?

Enquire Before Buying Request a Free Sample

Get in touch to find out about multi-purchase discounts

reportstore@globaldata.com
Tel +44 20 7947 2745

Every customer’s requirement is unique. With over 220,000 construction projects tracked, we can create a tailored dataset for you based on the types of projects you are looking for. Please get in touch with your specific requirements and we can send you a quote.

Sample Report

ESG (Environmental, Social, and Governance) in Financial Services – Thematic Research was curated by the best experts in the industry and we are confident about its unique quality. However, we want you to make the most beneficial decision for your business, so we offer free sample pages to help you:

  • Assess the relevance of the report
  • Evaluate the quality of the report
  • Justify the cost

Download your copy of the sample report and make an informed decision about whether the full report will provide you with the insights and information you need.

Below is a sample report to understand what you are buying

See what our customers are saying

“The GlobalData platform is our go-to tool for intelligence services. GlobalData provides an easy way to access comprehensive intelligence data around multiple sectors, which essentially makes it a one-for-all intelligence platform, for tendering and approaching customers.

GlobalData is very customer orientated, with a high degree of personalised services, which benefits everyday use. The highly detailed project intelligence and forecast reports can be utilised across multiple departments and workflow scopes, from operational to strategic level, and often support strategic decisions. GlobalData Analytics and visualisation solutions has contributed positively when preparing management presentations and strategic papers.”

Business Intelligence & Marketing Manager, SAL Heavy Lift

“COVID-19 has caused significant interference to our business and the COVID-19 intelligence from GlobalData has helped us reach better decisions around strategy. These two highlights have helped enormously to understand the projections into the future concerning our business units, we also utilise the project database to source new projects for Liebherr-Werk to use as an additional source to pitch for new business.”

Market Analyst & Management, Liebherr-Werk

Your daily news has saved me a lot of time and keeps me up-to-date with what is happening in the market, I like that you almost always have a link to the source origin. We also use your market data in our Strategic Business Process to support our business decisions. By having everything in one place on the Intelligence Center it has saved me a lot of time versus looking on different sources, the alert function also helps with this.

Head of Key Accounts, Saab AB

Having used several other market research companies, I find that GlobalData manages to provide that ‘difficult-to-get’ market data that others can’t, as well as very diverse and complete consumer surveys.

Marketing Intelligence Manager, Portugal Foods

Our experience with GlobalData has been very good, from the platform itself to the people. I find that the analysts and the account team have a high level of customer focus and responsiveness and therefore I can always rely on. The platform is more holistic than other providers. It is convenient and almost like a one stop shop. The pricing suite is highly competitive and value for our organisation.

I like reports that inform new segments such as the analysis on generation Z, millennials, the impact of COVID 19 to our banking customers and their new channel habits. Secondly the specialist insight on affluent sector significantly increases our understanding about this group of customers. The combination of those give us depth and breadth of the evolving market.

I’m in the business of answering and helping people make decisions so with the intelligence center I can do that, effectively and efficiently. I can share quickly key insights that answer and satisfy our country stakeholders by giving them many quality studies and primary research about competitive landscape beyond the outlook of our bank. It helps me be seen as an advisory partner and that makes a big difference. A big benefit of our subscription is that no one holds the whole data and because it allows so many people, so many different parts of our organisation have access, it enables all teams to have the same level of knowledge and decision support.

Head of Customer Insight and Research, Standard Chartered

“I know that I can always rely on Globaldata’s work when I’m searching for the right consumer and market insights. I use Globaldata insights to understand the changing market & consumer landscape and help create better taste & wellbeing solutions for our customers in food, beverage and healthcare industries.

Globaldata has the right data and the reports are of very high quality compared to your competitors. Globaldata not only has overall market sizes & consumer insights on food & beverages but also provides insights at the ingredient & flavour level. That is key for B2B companies like Givaudan. This way we understand our customers’ business and also gain insight to our unique industry”

Head of Consumer Sensory Insights, Givaudan

GlobalData provides a great range of information and reports on various sectors that is highly relevant, timely, easy to access and utilise.  The reports and data dashboards help engagement with clients; they provide valuable industry and market insights that can enrich client conversations and can help in the shaping of value propositions. Moreover, using GlobalData products has helped increase my knowledge of the finance sector, the players within it, and the general threats and opportunities.

I find the consumer surveys that are carried out to be extremely beneficial and not something I have seen anywhere else. They provided an insightful view of why and which consumers take (or don’t) particular financial products. This can help shape conversations with clients to ensure they make the right strategic decisions for their business.

One of the challenges I have found is that data in the payments space is often piecemeal. With GD all of the data I need is in one place, but it also comes with additional market reports that provide useful extra context and information. Having the ability to set-up alerts on relevant movements in the industry, be it competitors or customers, and have them emailed directly to me, ensures I get early sight of industry activity and don’t have to search for news.

Senior Account Manager, TSYS
Go even deeper with GlobalData Intelligence Center

Every Company Report we produce is powered by the GlobalData Intelligence Center.

Subscribing to our intelligence platform means you can monitor developments at ESG (Environmental, Social, and Governance) in Financial Services – Thematic Research in real time.

  • Access a live ESG (Environmental, Social, and Governance) in Financial Services – Thematic Research dashboard for 12 months, with up-to-the-minute insights.
  • Fuel your decision making with real-time deal coverage and media activity.
  • Turn insights on financials, deals, products and pipelines into powerful agents of commercial advantage.