As global banks are gearing up to adopt ESG models, the next big step is sustainable finance says Alvarez & Marsal

Global professional services firm, Alvarez & Marsal (“A&M”), has published the findings of the inaugural Green PACE rankings, proprietary research that ranks how the top 25 European and North American banks are capitalising on sustainability as a business opportunity.

Global banks today are complying with regulatory, investor and rating agency expectations as they go green. Maximizing financial benefits from ESG in a highly competitive environment will require banks to deploy a broad offering of sustainable finance and investing products, and articulate credible net zero plans for emissions financed. They will also need to adopt client orientation to transition planning and accompany clients in the operational journey by fully embracing innovation and digitalisation.

Revenue pool breakdown by region shows Europe and North America will represent 46 percent of the total revenue pool, or €135 billion, driven by more ambitious pledges by 2030 than Asia. The ESG revenue opportunity represents an incremental 10 percent of current revenues for banks in Europe and North America.

The report found that UK banks are outperforming their European and US peers on the transition to net zero, with NatWest coming out at the top of the table, by more than a 10% margin. The outperformance by British banks, and NatWest in particular, can be put down to strong investment and commitment across for capability areas evaluated including green product offering, alignment targets, client orientation and involvement in transition execution.

Mr. Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services commented: “The regional financial institutions are taking a leading role in embedding ESG into their businesses – both as an implementor in their own business models, and also as a potential source of revenue as they offer sustainable solutions to their customers. Elements of sustainability would need to be integrated fully into the business of banking – i.e., in the way banks examine risk, product offerings, and in the way the banking operations are run.”

A&M’s Green PACE ranking is based on an evaluation of the banks’ performance against four attributes which A&M believe will define the winners in sustainability. These are:

• Green Products: A&M looked at whether banks offer a wide range of sustainable finance products including bonds, loans and derivatives for both green and sustainable linked purposes. A&M estimates that the top 25 European and US banks have committed €13 trillion for sustainable finance as targets by 2030, the figure represents 37% of total bank assets or 15% of global GDP.
• Alignment to net zero: A&M conducted benchmarking of banks net zero target including number of portfolios, asset coverage, data quality and internal tools. A&M found that most banks have committed to phase out coal financing in the EU/OECD by 2030 and worldwide by 2040, with a handful of banks committing to earlier exits. A&M benchmarking also shows that US banks have higher intensity in their oil and gas financed emissions.
• Client orientation and insights: A&M tracked the transition advice and analytics linking client transition operational solutions with financial business case and customised insights.
• Execution of Transition Plans: A&M analysed banks’ involvement in operational execution through climate tech investing, innovate joint ventures and digital platforms.

Fernando de la Mora, Managing Director, Alvarez & Marsal said: “Global banks have recognised that the transition to net zero does not have to be a thorn in their side and instead is a huge business opportunity. Sustainable bank strategies are evolving from being regulatory and compliance-driven to a broader range of initiatives that can deliver new revenue streams and innovative solutions for clients.

“We are seeing an increasing 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 capitalise on ESG as a business opportunity.”

About Alvarez & Marsal

Companies, investors and government entities around the world turn to Alvarez & Marsal (A&M) for leadership, action and results. Privately held since its founding in 1983, A&M is a leading global professional services firm that provides advisory, business performance improvement and turnaround management services. When conventional approaches are not enough to create transformation and drive change, clients seek our deep expertise and ability to deliver practical solutions to their unique problems.

With over 6,000 people across five continents, we deliver tangible results for corporates, boards, private equity firms, law firms and government agencies facing complex challenges. Our senior leaders, and their teams, leverage A&M’s restructuring heritage to help companies act decisively, catapult growth and accelerate results. We are experienced operators, world-class consultants, former regulators and industry authorities with a shared commitment to telling clients what’s really needed for turning change into a strategic business asset, managing risk and unlocking value at every stage of growth.