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Report: Benchmarking ESG in banking and finance

March 2023 • A reality check on ESGby By Maximilian Bierbaum, Christopher Breen, and Seethal Kumar

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This is our second report that measures the penetration of ESG in different sectors of banking and finance around the world and highlights the challenges ahead for the industry. While there has been significant growth in ESG activity in the past years, in most sectors and regions it is still a small fraction of the total. Europe is a long way ahead in most areas of activity, but the US and APAC are catching up.

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The penetration of ESG in banking and finance

ESG has risen to the top of the agenda of policymakers and the global financial services industry in the past few years. When taking a look at a few websites of asset managers or pension funds, some may think they have landed on the website of a climate NGO instead. ESG seems to be everywhere – so it is surprising that it is still relatively difficult to find consistent and comparable data to measure the level of penetration of ESG in banking, finance, and the capital markets.

This is why in 2021 New Financial and Luxembourg for Finance set out to provide the first clear and consistent benchmark of the progress so far in sustainable finance, and we are glad to publish the refined, second edition of this report now.

There have been a few welcome developments in the last two years. First, the value of labelled ESG finance has significantly increased: from 2020 to 2021, ESG activity in all markets virtually exploded, and in 2022 penetration remained relatively stable. Second, more firms from all sectors have committed to applying ESG principles. And third, we are now able to better measure the implementation of ESG in different parts of the banking and finance industry.

But there are also a few things that have not changed: Europe remains the heartland of ESG with other regions catching up, the majority of capital markets activity remains non-ESG, and it is still difficult – if not impossible – to find clear data on ESG activity in a lot of important areas of banking and finance.

We think this report captures the penetration of ESG in banking and finance in an even clearer, more consistent, and more accessible way than our 2021 report. But it is still not perfect: for example, the fact that many sectors are missing indicates that the overall level of ESG penetration is probably still overstated. We are planning to further revise and improve this benchmark, and any feedback would be most welcome.

Here is a short summary of the report:

1. Measuring penetration: in this report, we measure the penetration of ESG in banking, finance, and capital markets by looking at the industry’s commitment, the levels of labelled ESG financial activity, and the implementation of ESG across the industry. In some areas of the industry, there are welcome levels of activity, while in some others there is virtually no activity at all. For all the noise around ESG, there are still relatively few areas of capital markets activity where there is clear, measurable, and comparable data.

2. A growing pledge: the commitment to ESG in the finance industry is growing. Almost half of 2,000 of the world’s largest banking and finance firms have signed up to at least one ESG initiative. But there is a wide range of public commitment between sectors – from 84% of all asset managers to just 24% of global insurers.

3.Serious money: in those areas of the capital markets where we can clearly measure ESG labelled finance, activity is growing. In 2022, the value of global ESG bond issuance reached $900bn (+46% since 2020), the value of ESG loan issuance reached $500bn (+255% since 2020), and the value of sustainable investment funds was a remarkable $2.5tn (+85% since 2020).

4.A breakout year: 2021 was the breakthrough year for ESG labelled activity. From 2020 to 2021, activity in all markets virtually exploded, and it was the first time that penetration of ESG labelled activity across the bond and loan markets in Europe reached penetration levels of between a quarter and a third of all capital markets activity. Despite 2022’s wider market downturn, penetration levels of ESG labelled issuance remained stable.

5.More than just the ‘E’: green bonds remain the primary type of ESG labelled bond issuance, but other types of ESG bonds are increasing in popularity. More and more corporate issuers worldwide are making use of sustainability-linked bonds, and the Asia-Pacific region is the leading market for corporate social bond issuance.

6. All eyes on Europe: other markets are playing catch-up, but Europe remains the heartland of ESG – likely due to a combination of the European industry having had a headstart in ESG matters and stronger regulation. Europe continues to capture the majority of global ESG activity across all areas of activity, more than one-third of all corporate bonds issued in Europe in 2022 were ESG labelled, and European sustainable investment funds account for more than 70% of the global ESG investment fund value.

7.The good and the bad: not all ESG activity in the capital markets is labelled. When analysing the share of capital markets activity by ‘good’ (a solar panel manufacturer) and ‘bad’ (an oil refinery) companies, we see that capital markets as a whole are still directing large amounts of funding to ‘bad’ companies. The good news is that things are getting better: the ratio between ‘good’ and ‘bad’ activity has improved in recent years.

8. Walking the walk? The uptick in finance firms that are signing up to ESG initiatives is a welcome development. They now need to walk the walk. Early implementation data by the Transition Pathway Initiative, the Science-based Targets Initiative, the Net-Zero Banking Alliance, and the Net-Zero Asset Owner Alliance indicates that firms are starting to do what they set out to do, but that there is still a lot of room for further progress.

9. Data challenges: while in some areas of banking and finance, such as investment funds or bond issuance, ESG finance is clearly labelled, in many others there is no clear distinction between ESG and non-ESG activity, and data is not comparable, does not exist, or is only limited to anecdotal examples. This could indicate a relative lack of activity, but it could also mean that data is just not recorded well.

10. Much work ahead: ESG has risen to the top of the agenda in the past few years, but there are questions on whether the current framework is still fit for purpose. There will need to be an honest discussion about whether ESG is adaptable and flexible enough to respond to a changing world, and whether it really is the best framework for the banking and finance industry to play its important role in supporting and driving this change.


With thanks to Christopher Breen, Seethal Kumar, and Katharina Ritter for collecting and analysing much of the data that underpins this report, William Wright for his support and feedback, Dealogic, The Banker, S&P Global Market Intelligence, and Morningstar Direct for providing access to their data, and Luxembourg for Finance for once again partnering with New Financial on this fascinating project.

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