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Financial returns are fuelling ESG boom as banks scramble to make sustainability gains

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Financial return is the top driver for ESG financing decisions for 800 of the largest companies globally, with one in every four (25.3 per cent) citing it as the key motivation, according to a new report.

The East & Partners report found that investors (19.8 per cent), marketing applications (14.6 per cent) public relations (12.9 per cent) are also key to driving the surge towards ESG. However, despite the crucial COP26 climate talks taking place in Glasgow in November, emissions reductions (2.5 per cent) and making an impact (1.9 per cent) are the two lowest drivers.

The report also found that poor data quality (77.3 per cent) and inconsistency of ESG definitions (66.7 per cent) were the biggest barriers to increasing financing for companies already actively engaged in ESG. However, lack of investor demand was the lowest barrier at 10 per cent showing that better data and definition could lead to further increases in ESG finance.

Paul Dowling, East & Partners, says: “The idea that investors are pushing for ESG adoption for the greater good of the planet is as absurd as one in which investors willingly forgo double digit returns. However, some investors who position ESG being primarily about risk mitigation, will increase existing asset values over time by applying pressure for better disclosure and governance around flagged risks.”

Corporate treasurers predict that de-risking a business will have the most substantial impact on their bottom line over the coming five years at 68.5 per cent. This was followed by the “greening” of supply chains (64.8 per cent). This was followed by 53.7 per cent citing transitioning to 100 per cent renewable energy and 51.6 per cent citing the offsetting of carbon emissions. 

The report observes that, under pressure from large institutional investors as well as reputational risk, banks have also started taking matters into their own hands by declining to fund some of their biggest clients and actively walking away from others entirely when their projects and strategies do not align with their own around ESG criteria.

BNP Paribas came out top of the best perceived “stand out” ESG or sustainable finance provider. It was followed by Standard Chartered and Citi.

Rishi Bhattacharya, CEO of Impact & Influence, a communications consultancy, says: “The messaging around ESG and sustainability has permeated the global consciousness to such an extent that the third most common driver of ESG financing decisions is marketing applications, swiftly followed by public and corporate relations. For this group of global top 800 businesses, the ability to market their sustainable actions to their key audiences outweighs nearly all other factors.” 

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