March 8, 2023 | Stamford, CT — Corporate banks around the world are puzzled at the lack of demand for ESG advisory services.
By now, the vast majority of companies have implemented ESG in at least some capacity. ESG adoption rates range from nearly 90% of large companies in Europe to about 70% in Asia, with U.S. companies in the middle at 80%. Those shares have increased significantly in all three regions over the past year.
Corporate banks have invested millions of dollars to build capabilities to help large companies integrate ESG into their businesses. European banks have invested the most, but global banks based in the U.S. are not far behind. Looking at trends in ESG regulation and adoptions, banks around the world projected increasing demand for ESG-compliant products and ESG-related banking and consulting services—first in Europe, then in the U.S. and Asia.
“To date, banks are surprised by the low levels of demand for their ESG products and services beyond traditional green/sustainable lending or bonds,” says Melanie Casalis, Senior Research Manager at Coalition Greenwich and co-author of Corporate Banks and Corporate Treasury: A Valuable Partnership for ESG.
Currently, the scope and quality of a bank’s ESG offering plays a small role in companies’ selection of providers of corporate banking services like cash management and trade finance. Only about 1 in 10 European companies consider a bank’s commitment to ESG when selecting a cash management provider. In the U.S., that share comes in at just 2%, down from 9% last year. Only 4% of U.S. companies consider expertise in sustainable financing as a criterion when picking a provider for trade finance.
Banks Ready to Help Companies Integrate ESG
In 2022, Coalition Greenwich asked the companies participating in its annual Large Corporate Finance study about the type of support needed in ESG. Roughly three-quarters of companies globally said they are looking for guidance and insights about what has worked and not worked for their peers.
For specific applications of ESG in the treasury function, companies in the U.S., Europe and Asia need different types of support. In Europe, companies advanced on their ESG journeys are looking for both high-level advice on regulations and overall strategy, as well as the individual products and solutions to execute that strategy.
In the U.S., where the ESG rulemaking process is taking off, large companies are especially eager for guidance about how to keep up and comply with emerging regulations. In Asia, where many companies are in the earlier stages of their ESG journeys, companies are asking for access to ESG products, particularly green bonds and ESG-linked loans that are often companies’ first steps toward sustainability.
“Banks are uniquely positioned to provide the ESG support needed,” said Dr. Tobias Miarka, Head of Corporate Banking at Coalition Greenwich and report coauthor. “They have up-to-date knowledge of regulatory developments across geographies and jurisdictions as well as dedicated resources to engage deeply with clients on policies.”
Corporate Banks and Corporate Treasury: A Valuable Partnership for ESG examines the challenges facing large companies as they work to integrate ESG, and presents a set of best practices to introduce ESG into their organizations and workflows. The report includes a detailed review of how large companies are employing ESG in their treasury departments and documents the ESG capabilities offered by leading corporate banks. To conclude, the report discusses specific ways large companies can benefit from taking their banks up on their offer to help them navigate the complex and increasingly important landscape of ESG.