ESG are the three key factors to consider when measuring the sustainability of a country or company. The global pandemic has arguably done more for ESG awareness than it did for digital adoption. A dual health and economic crisis, in which the fate of individuals was dependent on how other people behaved, created a heightened sense of togetherness. This was visible not only in terms of virus transmission but economically, as banks realised that only by helping customers survive the crisis could they help themselves repair balance sheets.  

Being forced to shut down huge chunks of the economy reminded everyone that social and environmental factors can directly impact economic growth. So rather than displacing ESG as a key theme, the pandemic has galvanised focus on it as we seek to rebuild better.  

However, not all companies are equal when it comes to their capabilities and investments in the key themes that matter most to their industry. Understanding how companies are positioned and ranked in the most important themes can be a key leading indicator of their future earnings potential and relative competitive position.  

According to GlobalData’s thematic research report, ESG in Financial Services, leading adopters include: DBS, UBS, WealthSimple, BlackRock, Goldman Sachs, Morgan Stanley, HSBC, Betterment, RBC, and T Row Price.  

Insights from top ranked companies  

BlackRock  

Larry Fink has been very vocal in his support for ESG through his letters to CEOs warning of divestment or activist board intervention if companies do not begin to align themselves with ESG principles. However, like any asset manager, BlackRock has significant holdings in fossil fuels and other unsustainable industry areas and practices. In fact, BlackRock was critical of P&G for being supplied by an Indonesian firm that produces palm oil, despite it later emerging that BlackRock was the third-largest shareholder in the parent organisation, a prime example of attempted greenwashing by the firm. Despite this, there is a clear top-down agenda at BlackRock to embed ESG principles not only in its organisation but in its portfolio companies and the wider industry too. Given the size and influence of BlackRock, this could work, but more substantive evidence is needed before it can be heralded as a saviour. 

Goldman Sachs 

Goldman Sachs has been the 15th largest financer of fossil fuels since the Paris Climate Agreement. This is the best position of the major US banks. In that period, it has invested less than one-third the amount of JP Morgan in fossil fuels. At the end of 2019, Goldman Sachs announced that it would be directing $750bn over the next decade to finance and advise companies in areas related to nine key themes within climate transition and inclusive growth finance. The firm also pledged that it would not fund any new drilling projects in the Arctic. There has not been enough time to analyse the effectiveness of these pledges and policies, but the bank is clearly trying to get ahead of the pack when it comes to ESG in financial services. 

Morgan Stanley 

Morgan Stanley is aiming to achieve carbon neutrality for its internal operations by 2022. In 2020, the firm also became the first US financial services firm to commit to achieving net-zero financed emissions by 2050. The firm has been the 12th largest financier of fossil fuels since the Paris Agreement, putting it in a better position than many of its counterparts but still worse than HSBC, Goldman Sachs, and Deutsche Bank. Morgan Stanley has become the first US-based global bank to join the Partnership for Carbon Accounting Financials (PCAF). The PCAF aims to standardise carbon accounting for the financial sector, meaning that Morgan Stanley will disclose how its investments and loans affect climate change. In 2013, the bank formed the Morgan Stanley Institute for Sustainable Investing, aiming to deliver “competitive financial returns” while funding projects with a social impact. 

To further understand the key themes and technologies disrupting the wealth management industry, access GlobalData’s latest thematic research report on ESG in Financial Services. 

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