ESG performance is increasingly key to winning business

Win Business

Here’s this note from Nawar Alsaadi:

ESG performance is increasingly becoming a key differentiator for companies across industries. Case in point, this recent story from Bloomberg on banking losing underwriting fees due to poor ESG scores: Ulf Erlandsson, founder and chief executive of the Anthropocene Fixed Income Institute, says he’s aware of “a number of issuers” that have been close to putting their bank counterparties “in the box” — industry-speak for halting business with them for a period of time — if a bank is “fundamentally misaligned” with an issuer’s own ESG goals.

The story cites a couple of examples where banks like Barclays lost business due to ESG performance concerns by issuing counterparties: “Last May, Barclays abandoned plans to respond to a request-for-proposal from NIB after concluding it was unlikely to succeed due to a low ESG score, according to one of the people familiar with the matter.”

Another example of an issuer using ESG as a tool to select underwriters is Berlin Hyp AG, a German commercial real estate bank and a regular issuer of green, social and sustainability-linked debt. Since 2022, it has asked dealer banks to provide information on how many sustainable bonds they’ve underwritten, as well as how many deals for fossil-fuel companies and projects they’ve funded.

“In the end, it’s about reputational risk for us,” said Bodo Winkler, Berlin Hyp’s head of funding and investor relations. “If a dealer’s fossil-finance numbers are going up year-on-year, then our values aren’t aligned and it’s important we don’t sit together.”

And this is not only about banking, a couple of weeks ago, I cited a Deloitte survey of 1300 chemical and energy industry buyers that revealed a strong relationship between sustainability performance and buyers’ willingness to sign long-term contracts and pay premium prices.

Those who think ESG and sustainability was some kind of fad, and that we are going back to companies doing business with total disregard to their environmental, social, and governance performance, need to think again. Business surveys unquestionably reflect a deepening relationship between business and sustainability. And it is clear that companies that fail to deliver on the sustainability front will increasingly lose market share and lose relevance.