Insider Brief:
- A new study from ISS Insights found a positive correlation between banks that are working to decarbonize their value chain emissions and ESG scores.
- The study also found a positive link between decarbonization and financial performance.
- Larger banks tend to reap the most reward from decarbonization plans, as they have larger budgets to pursue initiatives.
Bans that have adopted measures to decarbonize their value chain emissions tend to fare well both on their ESG performance and with their bottom lines, a new study from ISS Insights found.
Using their ISS STOXX data, ISS Insights analyzed 300 banks around the world, and evaluated each on the Climate Impact of the Corporate Value Chain. These were calculated based on the banks’ carbon footprint of the corporate value chain, its portfolio decarbonization strategy, and monitoring and reporting by the banks.
Stronger Correlation for EU and U.S. Banks
Banks that perform highly on the first factor have a strong correlation with higher ESG scores, a correlation which is particularly strong among European Union-based banks and U.S. banks.
Similarly, banks with a transparent Portfolio Decarbonization Strategy have a high correlation with ESG scores.
Bank size will have an impact on the level of correlation, the study found. Large-capitalization banks outperform both mid-size banks and small banks on their ESG scores and their corporate value chain emissions, the study found.
In terms of financial performance, banks with better portfolio decarbonization strategy scores financially performed better than those banks with lower scores.
Banking Sector Faces Climate Scrutiny
The banking sector has come under increasing scrutiny, especially in Canada, for its climate footprint and financing of fossil fuel development. Earlier this month, the global Net Zero Banking Alliance, voted to lower entry standards to potential new members after four Canadian banks left.
