2021 Global Bank Review-Intro and articles

Introduction video from Paula Hodges QC

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ESG Perspectives

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Going green – rising expectations and risks on green claims

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Clearing the fog – does your ESG agenda raise competition concerns?

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Sustainable loans – are we there yet?

SPOTLIGHT ON... Ivan Varughese

Head of Green Investment Group – Asia Pacific, Macquarie Group

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ESG targets and banker comp – we've only just begun

Fossil-fuelled – how banks are increasingly becoming targets for climate activists

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Human rights due diligence and banking – a practical introduction

Stressing out – the dash to chart banks' climate exposure

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SPOTLIGHT ON... Marco De Benedictis

Head of Sustainable and Transition Finance, Barclays

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Boosting virtue, banning vice – will ESG and financial crime agendas converge?

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Central bank digital currencies and ESG – a sprint across the tightrope

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Green Investment Group Asia head Ivan Varughese, UBS global head legal, sustainable finance Aleksandra Schellenberg, and Barclays’ sustainable finance leader Marco DeBenedictis share their insights.

Banks face mounting pressure to make ambitious climate pledges, while avoiding greenwashing claims when rhetoric falls short of reality.

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With investors throwing their weight behind activist campaigns, banks face mounting pressure to divert funding away from high-carbon industries.

Scrutinising human rights records is moving into the mainstream of deal-making. That will include lenders.

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Banks are increasingly being pressed to report climate risks to their business. We chart the global drive to gauge the financial industry’s climate resilience.

Sustainable loans are booming, but not yet for every borrower.

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As ESG rises up corporate agendas, competition authorities face a challenge in supporting progressive collaboration without allowing harm to competition. A lack of clear guidance leaves more questions than answers.

Executive remuneration packages are increasingly linked to ESG targets. This trend will only grow.

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As ESG evolves from its roots in fostering virtuous investment towards prescriptive regulation, we ask if the tools to tackle financial crime will converge with the wider social agenda.

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CBDCs are touted as helping the unbanked into the financial system but vast social promise must be balanced against complex environmental and governance concerns.

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Banks are also acutely aware of the array of regulators and policymakers who most definitely are converts to the ESG cause. This phase of regulatory evangelism is focusing on setting regulatory standards, the appeal of enlightened self-interest and calls to action, particularly on beefing up non-financial disclosures and building better understanding of firms’ climate exposures. But prodding and rhetoric will be soon replaced with the threat of enforcement and spectre of sanctions as a host of new requirements come in. Within five years, banks will face far tougher scrutiny of their climate exposures and the tools they are using to identify, measure, monitor and manage them. Within ten, they will likely have to set their capital buffers to reflect the climate risks in their loan books. While banks appear culturally inclined to get on board with ESG, tackling such issues involves a fundamental reappraisal of their systems and processes. Having evolved to assess defined fields like credit and market risk and their legal and operational vulnerabilities, they are now being pressed to view risk through a very different lens. This will push banks into a complex, circular relationship with their clients: banks must gauge and report their own positions while relying on the transparency and accuracy of their clients’ and counterparties’ disclosures. Such challenges are further complicated by lack of consensus and uniformity on ESG disclosures and accounting standards. The expectation – and certainly hope – of many in the industry is to reach meaningful harmonisation by the middle of the 2020s and preferably sooner. Further pressures loom with the rise of activism targeting banks, currently primarily focused on their roles in financing high-carbon industries, and also with increasing regulatory attention on preventing over-zealous marketing resulting in greenwashing. Climate-related disputes involving banks have so far been confined largely to a few (usual) global hotspots but expanding regulatory requirements will likely give claimants more to get their teeth into. Likewise, warning bells are already being sounded about the risk of the current investment boom in clean energy and sustainable investments creating a green bubble in which pricing is driven by investor sentiment rather than fundamentals; if that eventuates, losses incurred in a subsequent correction will surely stoke litigation and misselling claims. Such emerging risks will be offset by abundant opportunities, notably in financing the new technologies required to enable a successful transition to a lower carbon economy and in servicing an investor base hungering for sustainable returns and green products. You will find all these topics and more explored in this edition of Global Bank Review, our fifth annual report drawing on the wealth of sector experience within Herbert Smith Freehills, augmented by the contributions from our clients for which we are very grateful. What is our core assessment? If ESG represents considerable challenges for banks, it also offers significant opportunities and a chance to shape the ESG conversion in conscientious decision-making as to how to deploy capital and drive behaviour. Perhaps a little faith is in order. Co-Chairs, Global Banks Sector Group

Hannah, Simon and Tony

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SPOTLIGHT ON... Aleksandra Schellenberg

Global Head Legal Sustainable Finance, UBS

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Triodos Spanish chief on ESG and remaking banking for the 2020s

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Mikel Garcia-Prieto Arrabal shares his views on how climate change and rising social obligations are impacting banks and how finance will tackle ESG through the 2020s.

Banks' talent model challenged by the post-COVID career track and Gen Y aspirations

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Culture, COVID, regulation – all are pressing change on an industry that once thrived on long hours and presentism. Can a new generation of leaders reposition finance for tomorrow’s bankers?

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Digitisation and decarbonisation – A delicate balance

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A new wave of potent digital tools promise to super-charge finance houses’ climate efforts. But there’s a catch.

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Global Bank Review: Digitisation and decarbonisation – A delicate balance