January 24, 2023 | Stamford, CT — European banks have invested the most in ESG offerings and global banks based in the U.S. are not far behind, but the demand has not yet materialized.
That situation could change soon as European regulators assemble tougher rules on ESG reporting for U.S. companies with international operations. In the U.S., the SEC has likewise proposed enhanced disclosure rules about climate change and greenhouse gas emissions.
“Despite the widespread adoption of ESG standards, ESG currently plays little to no role in U.S. companies’ selection of providers of corporate banking services like cash management and trade finance,” says Dr. Tobias Miarka, Head of Corporate Banking at Coalition Greenwich and author of As U.S. Corporates Reassess Bank Relationships, Banks Question Lack of Demand for ESG.
It is not just regulators putting pressure on companies. In the past proxy season, companies faced a raft of shareholder proposals that would direct them to increase disclosure on environmental issues, as well as on DEI and other ESG-related topics. A sizable number of those proposals passed, and companies and proxy experts expect more to come in 2023 as market forces also push U.S. companies to become more ESG-focused.
About 80% of the U.S. companies participating in the Coalition Greenwich annual U.S. Large Corporate Banking Study have established some organizational ESG goals. In cash management, only 2% of the participating companies say a bank’s level of commitment to ESG plays any role in provider selection and that is down from 9% last year. In trade finance, only 4% of companies include expertise in sustainable financing as a condition when picking a provider.
As consumers become increasingly conscious of environmental and social issues when making purchases, companies are under increased scrutiny for the sustainably of not just their products, but entire supply chains. If growing shares of investment dollars continue flowing into ESG funds, ESG factors will have an increasing influence on share price and company valuation.
For these and other reasons, U.S. companies at some point will accelerate the integration of ESG standards throughout their organizations and banks that have made the investment in ESG should stay the course. They should be working to help companies in their ESG journeys by providing financial incentives for adoption, overall education and advice, counsel on future regulatory actions and their impacts and specific ESG products and services.
“Banks should continue communicating to their clients about the growing importance and potential benefits of ESG and continue to remind clients that they are there to help,” says Dr. Tobias Miarka. “Meanwhile, large U.S. companies should be asking their banks and all other external partners for advice and assistance in integrating ESG into operations, treasury and all other aspects of their business.”
As U.S. Corporates Reassess Bank Relationships, Banks Question Lack of Demand for ESG reflects the insights gathered during the annual U.S. Large Corporate Banking Study, for which Coalition Greenwich conducted interviews in large corporate banking, corporate cash management and trade finance at U.S.-based companies with $2 billion or more in annual revenue. Participants are asked about market trends, their bank relationships, product demand, and the quality of coverage and capabilities in specific product areas.