ESG in the financial services sector: 'Don't be late to the party'

06 July 2022 3 min. read

Financial services institutions globally and in the Middle East are expected to step up their ESG game. Those that succeed are likely to reap big rewards, according to a report by Whiteshield – an international public policy and strategy advisory firm.

The report, titled ‘ESG in the financial sector: don’t be late to the party’, sheds light on the growing importance of ESG for the financial sector as stakeholders from all directions are closing in on organisations – which play a central role in the economy – to do their part. ESG in the financial services sector: ‘Don’t be late to the party’

Investors and regulators are paying close attention to the ESG behaviour of financial organisations, employees are expecting more from their employers, and reputation among consumers is increasingly tied to ESG performance.

Global Sustainable Finance Market Size

“Corporate responsibility is evolving, and environmental, social, and governance standards and metrics are more important than ever, as companies assess global challenges, including meeting net-zero commitments which are now more critical than ever,” said Antonio Somma, Partner and Director at Whiteshield in its Dubai office.

Demonstrating the rise of ESG is one metric: the sheer volume of money being pumped into the ESG-linked bond market (also known as green and social bonds). Analysis from Whiteshield (based on data from Bloomberg and Sustainalytics, among others) shows that the market is expected to hit $1.3 trillion by the end of this year, up from just $100 billion in 2016.

By 2050, the ESG financing and investment market is predicted to boom to a massive $50 trillion or more. Somma: “We expect that emerging business opportunities based on ESG products and services will increasingly dominate the scene in the years to come.”

A major driver of the transition to ESG stems from policies by governments and government-linked regulatory bodies. But financial services institutions that want to lead in the ESG space – and leapfrog their competitors – should according to the report go beyond regulatory compliance and shift to a more opportunity-driven approach.

“ESG is now a fundamental pillar across all public policies and should be taken as granted for companies to act on,” said Fadi Farra, Founder and Manging Partner of Whiteshield. “But leaders in the field turn ESG into a competitive advantage, enabling them to seize commercial opportunities, gain access to cheaper funding, build branding among investors and the public, and operate more resilient towards ESG risks.”

Correlation between ESG and inancial performance for corporations

While ramping up ESG maturity can be costly, and is notorious for its complexity, research shows that the investment is well worth it. Whiteshield’s report presents an aggregated analysis of over 1,000 studies into the correlation between ESG and financial performance, finding that over half of the studies concluded that ESG positively benefits the bottom-line.

“Corporate financial results are likely to improve when ESG is effectively integrated into strategies. Alongside better business outcomes, ESG also leads to a more equitable treatment of stakeholders, and a more sustainable future,” remarked Farra.