Will ESG-linked accounts help banks stand out from their sustainable finance competitors?

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Will ESG-linked accounts help banks stand out from their sustainable finance competitors?

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When Standard Chartered introduced its ESG-linked account in August 2024, it wasn’t the first time the bank had turned its focus directly towards environmental and social issues in its product portfolio. In fact, the bank’s sustainable account - which offers clients access to their cash while investing the surplus to support United Nations Sustainable Development Goals (SDGs) - has now been in operation for more than two years. The UK-headquartered institution had previously introduced a ‘sustainable deposit’ offering in 2019.

While a few other major banks have recently introduced similar sustainably focused deposit accounts (CIBC, UOB in Singapore) the list of prominent banking providers going beyond just providing sustainable investment management opportunities is still quite small.

As Lizzy Girling, Standard Chartered’s head of sustainable finance products and frameworks, shared with Finextra, the bank’s sustainable deposit account is still active and growing among its client base after its initial two-country launch. Meanwhile, its new ESG-linked account – also available at first only in Hong Kong and Singapore - ties its interest rate and/or fees to corporate clients’ achievement of key environmental and social performance indicators that are material and relevant to the client’s business. These targets must be benchmarked to the client’s peers or a combination of competitors and their own previous performance.

"Our sustainable account offering is still very much alive, and a proposition which has gone down very well with our clients. Effectively, what it does is allow our clients to help support the financing of sustainable assets on the other side of our balance sheet.” The purpose behind launching the newest ‘ESG-linked’ account offering, with its target-connected pricing is, according to Girling, “to be able to completely tie in an organisation's or a client's sustainability objectives with their treasury management practices.”

New products are positioned against clear, aggressive climate and income targets

Standard Chartered’s climate goals have been clearly stated. “Sustainability is one of the core pillars of our organisational strategy,” said Girling. “From our perspective, [that] is really exciting because it means that our work is really embedded in what the organisation is trying to achieve through everything that it does.”

“We have set targets to be net zero [when greenhouse gas emissions produced from human activity in an organisation are in balance with emissions reductions elsewhere] in our own operations by 2025 and then net zero in our financed emissions by 2050 - and that's very ambitious, given the markets which dominate our financing. We have a $1 billion sustainable finance income target for 2025, and we are pushing towards that target this year. [This] has really driven a lot of the [bank’s] product growth and ambition,” Girling emphasised.

The best sustainability strategy is a fully embedded one

Standard Chartered’s commitment to sustainable lending and products runs across the entire institution, according to Roshel Malabeer, Standard Chartered’s global head of sustainable finance-trade and working capital.

"The bank has taken proactive steps [to align] a vast array of our activities towards sustainable finance principles.” She noted that in addition to policies on allowable investments, and regular reports and surveys of their markets and clients to explore sustainability investment opportunities and appetites and validate specific approaches, the bank’s staff has designed what she called “solutions across a multitude of products.”

Meeting the needs of MNCs and SMEs is tougher in some territory than others

While Standard Chartered has tried to extend its offering to all its customers in all regions, the nature of its geographic market focus adds a particularly interesting ‘twist’ to efforts to extend such products to the SME, or small-to-medium enterprise level, said Malabeer.

"Our footprint is in emerging markets, [yet] we are UK-incorporated. So, we are taking best practices, which may be developed more in western countries, and then trying to push forward [ideas surrounding] energy transition and social inclusion, etc., basically all over the world.”

Many large or multinational corporations – especially in the more developed western and northern parts of the world - have already embraced – in principle at least - sustainable solutions and climate transition plans as part of their resilience strategy. Meanwhile, smaller companies – many of them suppliers or customers to those larger companies - often lag behind or have not yet gotten started on their sustainability journeys. Standard Chartered sees an opportunity to serve both, said Malabeer.

“We now have quite a wide array of financing products [for] SMEs, as well as large MNCs. We have taken the stance that products and solutions we provide [are aimed at] funding all of those sorts of clients. Through our trade proposition, we support them in various ways. In some cases, they're the supplier. In some cases, they could be the distributor. But we've integrated all the same principles of sustainable finance into underlying trade transactions.” Malabeer admitted that the nature of their operating geography limits the bank’s approach somewhat. “We tend to bank SMEs in the markets where we have a stronger presence. So, it is more focused on Asia, Africa, and the Middle East.”

New markets on the horizon for sustainable business and consumer accounts?

Standard Chartered, the 44th largest bank by asset size according to S&P Global, has ranked better than many of its global peers (#33) in Rainforest Action Network’s ‘Banking on Climate Chaos’ 2023 fossil fuel industry lending reports. It has decreased its overall support for extractive industry by about 34% (from $11.1 billion down to $7.3 billion) since 2018. However, the institution is also right near the middle of the ESG risk ratings provided by Sustainalytics, ranked ‘medium risk’ at #463 of 1039 banks listed in the Morningstar-owned ESG research and data analysis company’s 2023 annual industry report.

What’s next for the ESG-linked and sustainable account product rollout? “There is an intention to expand [product availability]. It will just happen gradually over the next year or so,” Girling explained. She reiterated that sustainable, ESG-linked, or other account or product offerings will address broader sustainability strategy and ambitions the bank has as an organisation. The rationale behind this link to the bank’s net zero targets, Girling said, is that “success and decarbonisation of our clients’ emissions profile will be success in our own facilitated emissions - and so it is in our interest to support our clients to achieve their sustainability strategies more broadly.” Standard Chartered, Girling pointed out, has a "very holistic perspective internally on what sustainability means. It's not just about decarbonisation. It's about social metrics, etc., and we certainly stand behind the importance of ESG in terms of its environmental and social components as well.”

Action, not publicity, is the best way to accomplish sustainability goals

Standard Chartered emphasises its seriousness towards tying words and actions together to achieve climate mitigation and transition objectives. The bank is a founding member of the UN-led Net Zero Banking Alliance and has taken a strong stand for sustainable practices in the areas where it does business, and among its consumer, corporate, and SME client base.

The bank’s 2023-issued Green and Sustainable Product Framework document notes that it clears more than 85% of its income and profits from its top three regions, though it operates in some form in 50 of the world’s markets. 30 of those countries, it says, “receive official development assistance,” and seven of them are among the least developed in the world. Servicing clients in such areas while focusing on promoting sustainable practices is more challenging than doing so in more economically advanced geographic regions, which broadly defined are primarily in the global north and select other countries below the equator.

Finextra and ResponsibleRisk recently hosted Sustainable Finance Live in London to focus on natural capital management in light of rising ESG concerns, and Climate Week NYC brought together many grassroots climate action supporters, sustainable investment managers, and visionary corporate leaders in ‘Gotham City’ to explore ways to better align societal and environmental priorities with corporate goals and operating models.

In concert with these events, we’ve been sharing stories about upstart, fast-growing sustainable financial institutions in the UK and US. Firms that are forging new, more regenerative paths in the banking industry by providing fossil fuel investment-free, earth-friendly, and otherwise more sustainable banking products and services for increasingly aware (and savvy) individuals and businesses.

We’ve also highlighted the efforts of sustainable investment organisations like Ceres that have worked for decades with some of the largest banks and corporations. Their primary aim? To encourage these industry leaders and financiers of millions of their own business clients, large and small, to implement climate-mitigation and social equity transition plans to reduce risks for investors, help clean up the world and our biosphere, and act in the interest of their own future resilience at the same time.

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