ESG - if my bank can’t help me, who will?

What is the path of least resistance for banks competing for leadership across Environmental, Social and Governance (ESG) factors? What measures are necessary to truly stand out and lead the pack in the emerging area of sustainable finance?


Although major consultancies, ratings houses, institutional investors and non-government organisations (NGOs) have been setting about establishing their own defined ESG presence for the past decade, Australian bank’s approaches to supporting their corporate clients aspirations vary wildly or are “continuing to evolve in line with market dynamics". If the sell side is yet to determine a coherent strategy, where does the buy side acquire appropriate support and ESG advice?


Implementing ESG principles and equipping corporate board rooms for the new normal may be firmly on the agenda for banks and their corporate clients, or at least they are espousing to do so, however the specifics of how they achieve more in the space is not so clear cut. Whether operating an autonomous ESG division or integrated ESG functions within separate product, sales, credit, strategy and marketing teams, from a CFO’s perspective it is for the most part ‘all bluster and no bite’.


Much of the indecision and false starts stem from the varying success and impact sustainability adoption and investment have had across separate industry verticals. Implementation of successful ESG principles for example across a domestic focused manufacturers’ supply chain will result in substantially different outcomes from that of an agricultural business with an active import and export function. These two businesses will also require different approaches and tools to achieve similar ESG compliance. Despite this moving target for banks, corporates simply expect more when it comes to reliable guidance and advice.


Factors Holding Back ESG Adoption


Is the clear reluctance of many business banks to simply ‘join the bandwagon’ holding back progress? Or is it driven by the lack of appetite from their corporate clients who aren’t yet convinced that the benefits will outweigh the initial costs and disruption to business as usual? Compliance and risk implications continue to be the most pressing hurdles to overcome for banks however this should not act as a deterrent to broader based guidance and education for their business clients. Setting the groundwork now for the why’s and how’s will make for a smoother transition once a bank has its internal policies and strategies finalised.


2018 was a bumper year for ESG and sustainability with a number of major banks pledging billions of dollars to combat climate change and many others pulling out of environmentally destructive lending. This coincided with a report from HSBC which highlighted improved financial returns as the main driver behind investors embedding good ESG practices into their activities. 2019 could be the year the business community begins to embrace and integrate ESG factors, particularly if it is evident that it is good for business.


Global investment managers such as BlackRock are extremely bullish on green bonds and this year launched an exchange-traded fund aimed at broadening access to the quickly growing market for environmentally friendly debt. More than US$500 billion in green bonds has been issued since 2009, weighted in recent years more heavily towards China, supporting the creation of an index that the group expects to continue growing quickly. Separately in Asia, Sukuk investors are also increasingly considering ESG factors and sustainability. Islamic and green finance have found common ground and this provides a viable foundation for further growth.


Who are you going to call?


Corporates can be forgiven for placing their trust in TED talks or Leonardo Di Caprio’s latest missives for guiding their ESG framework policy setting given the swathes of misinformation and lack of clear cohesive guidance from within their advice networks. However, there is evident demand for more information with the Clean Energy Finance Corporation recording sizeable increases in corporate enquiry, membership and investment volumes in Australia.


Lack of knowledge and education is a primary factor in businesses not adopting certain risk management solutions such as hedging their FX exposures and is something we see repeatedly in our conversations with businesses. While banks are by no means at the top of the list of trusted advisors for businesses, ESG is an area that could prove to be an exception with first mover advantage going to the provider who positions itself as a partner to business who is there to support and guide rather than sell.


Ensuring ESG factors are at the heart of financial decision-making for businesses of all sizes can be driven by its correlation to greater financial stability and improved asset pricing. Businesses want to do business and they want to do it better and longer than their competitor down the road, or increasingly their competitor across the ocean. Providers would do well to focus on highlighting why and how ESG practices can help them achieve their growth ambitions.




A clear opportunity has emerged for further education in the Australian, and global market to arm senior executives including CFOs and corporate treasurers with the requisite ESG knowledge they need to remain competitive in their segment. Clearer disclosure about the outright benefits of investing in sustainability across the company and justification for why ESG compliant policies and strategies should be promoted ahead of other strategic and operational investment decisions is also a straight forward starting point in the Australian market which arguably already has much catching up to do with its international counterparts.


Banks and financial providers are in a privileged position with the success of the UN’s Sustainable Development Goals and the transition to a low carbon economy firmly under their influence. The ability to shape and guide business behaviour and the global outlook should not be taken lightly and is an opportunity, particularly in Australia, for providers to do better.


Previous Research Notes on ESG and Sustainable Finance:

The Opportunity for Sustainable Finance in Emerging Markets

ESG Financing in Asia – Ready for Take Off?


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