Frankfurt Do good and earn money at the same time. For Bernie Mensah, President of International at Bank of America (BoA), this is not a contradiction in terms. Like most of his colleagues, he is focusing on the trend topic of sustainability: “Because the capital markets are such a powerful tool, the banks will play a very important role in the fight against climate change,” he says in an interview with Handelsblatt. In its distribution function for capital and liquidity, he sees the industry in a “central role” in achieving the goals of the Paris Climate Agreement.
Shortly before the global climate summit in Glasgow at the end of October, the topics of ecology, social commitment and ethical corporate management (Ecology, Social, Governance, or ESG for short) are becoming even more important for the industry.
But how big is the economic opportunity that is actually presented for the banks? Independent analyzes show that the potential is there, but it may be a long time before the green boom also pays off in business. The way there is riddled with risks – and this is not just about the general suspicion of greenwashing.
With his statements, Mensah is only at first glance in line with many of his colleagues. Deutsche Bank boss Christian Sewing simply sees the fight against climate change as one of the greatest business opportunities for the industry in a decade.
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For Mensah, who has been running the BoA outside of North America since the beginning of September, the situation is somewhat more differentiated: “For us, the central question is how we can help our customers to make the transition to a CO2-neutral economy . If the banks do a good job at this, it should also be net positive for the industries in terms of business, ”says the manager. But he also emphasizes that “there are a lot of risks lurking along this complex path”. That is why banks should not see the issue of sustainability just as a business opportunity, but first and foremost as an opportunity to deepen relationships with their customers.
Trillions of extra business
The analysts of the research house Autonomous assume that the restructuring towards a CO2-neutral economy will bring the banks an additional annual financial volume of 2.3 trillion dollars in the years 2020 to 2050. That would correspond to an increase of 15 percent compared to the status quo. The experts believe that this could increase the stock market valuations of European banks by 15 to 20 percent.
However, Autonomous also admits that the trend towards more sustainability is a long-term issue. The research house’s rather sobering conclusion: “We don’t see any catalyst in the next twelve months that could accelerate development on a broad basis.”
Bank of America’s President of International believes that not all banks will benefit equally from green finance.
Photo: BoA
BoA manager Mensah, on the other hand, emphasizes the opportunities for the banks. In addition to green bonds and green credits, he sees a multitude of possibilities for benefiting from the sustainability trend: “There is trading in CO2 certificates and the offsetting of CO2 emissions. Many companies will have to restructure. Our merger advice will benefit from this. “
In addition, a lot of money will be invested in green, clean technologies. This would open up new opportunities for private equity and venture capital. And finally, the conversion will make cross-border multi-billion projects necessary, with corresponding transactions for currency hedging.
Great potential in Asia
However, not all banks will benefit from these opportunities to the same extent. Autonomous confirms that Asia in particular still has some catching up to do in terms of climate protection. The research house therefore sees banks with a focus in this region as being particularly well positioned. These include HSBC and Standard Chartered, which are based in the UK, but earn most of their money in emerging markets. The experts also name the Japanese money house Mizuho, but also Deutsche Bank as favorites.
In their study, the Autonomous experts emphasize that the banks still have a lot of work to do overall to adapt their loan books to the climate targets they have set themselves. In order to make progress measurable, the analysts have developed a Paris Readinesss Index, APRI for short, alluding to the Paris Climate Agreement. “The index shows that European banks are still in the lead, above all ING, Société Générale and Barclays,” says the study.
Among the 16 banks that have received at least a C rating from Autonomous, there is only one institution with its headquarters outside Europe, the major US bank Citi. Deutsche Bank ranks eleventh. Bank of America ranks 23rd out of a total of 43 institutes examined.
Mensah does not want to comment on this ranking any more than the fact that Autonomous ranks the BoA third on the list of the world’s largest financiers of fossil fuels, behind JP Morgan and Citi. The BoA had promised to become CO2 neutral by 2050. However, the bank admits that this is a “particularly complex” restructuring, especially for large financial groups. Because not only the bank itself and its supply chains would have to become CO2-neutral, but also all of its customers. The bank emphasizes that it has been the top renewable energy investor and lender in the US since 2015.
Industry under suspicion
Most recently, the entire financial sector came under suspicion of portraying its green commitment too positively. The discussion about greenwashing was triggered by an accusation made by the former head of sustainability at the German fund company DWS. Your ex-employer is nowhere near as advanced as publicly claimed when it comes to ESG.
In addition, there was criticism from the ex-boss for sustainable investments of the world’s largest fund company Blackrock. Tariq Fancy warns that green financial products are no more effective than a placebo in the fight against climate change.
BoA banker Mensah takes such allegations seriously: “Greenwashing can lead to a major setback in efforts to create a more climate-friendly economy,” he says. There is a risk that confidence in the financial markets to provide the necessary capital for the restructuring and to distribute it efficiently will be undermined.
According to Mensah, it is inevitable that more cases of greenwashing will come to light because “the ESG market is growing fast and the definitions of what is good and green are not yet as ambitious as necessary”.
It is positive that the number of cases is low because society is closely monitoring developments. Mensah’s conclusion: “Regulation is necessary, but it needs to be balanced.” From the banker’s point of view, there is “a fine line between preventing abuse and hindering the growth of an increasingly important part of the financial markets”.
More: Europe’s fund industry switches to green: Why Germany is lagging behind