Roxane Haas, Banking & Capital Markets Leader at PwC Luxembourg; Credit: PwC Luxembourg

PwC Luxembourg has announced the publication of its report "Banking Trends & Figures 2021: What does ESG mean for banks?"; the presentation of this market analysis was originally given at a phygital event held in PwC's premises on 26 October 2021. 
 
This year’s Banking Trends & Figures report takes a deep dive into the subject of environmental, social and governance (ESG) and identifies factors that are driving the growth of ESG in Luxembourg’s banking industry. The banking industry in the Grand Duchy has proven its success over time, becoming a stable international hub for European, American and Asian banks.  It has also been resilient to the different waves of disruptions that have been analysed in this series, coming from the entrance of non-bank financial players, to digitalisation and regulatory changes. 
 
PwC decided to analyse this ESG wave, discovering notably that:
  • 77% of institutional investors are ready to stop investing in non-ESG products by 2022;
  • 14% of asset managers plan to stop launching these products by next year; 
  • 73% of local banks’ CEOs are willing to invest more in the green transition of the banking sector.

“The ESG revolution has underpinned massive changes within the European financial industry. Banks, given their dual positions both as financial market participants and sources of financing, will be impacted twice as much by this paradigm shift and bear double the responsibility for taking active concrete steps towards increased sustainability. The Luxembourg banking sector has not been exempted from this shift, with various banking groups adapting accordingly to remain competitive", commented Roxane Haas, Banking & Capital Markets Leader at PwC Luxembourg. "Thus, the first part of this year’s report takes a deep dive into the subject of ESG and what it means for banks. It assesses banks’ current sustainability initiatives and highlights the urgency for a transformation approach that integrates ESG at both the organisational and products / services level. To this end, our report has identified a number of factors that are driving the growth of ESG in Luxembourg’s banking industry”.

In this report, PwC Luxembourg has identified six factors that are catalysing the surge of ESG within the banking industry:
  • Regulation is institutionalising change in the banking industry;
  • Retail clients are taking sustainability seriously - a new dimension for advice; 
  • A majority of institutional investors consider ESG risks;
  • MIFID target market and sustainability preferences;
  • High-net worth individuals are driving the ESG transformation of portfolios;
  • Corporate clients are looking to banks for green financing.
With mounting pressure from stakeholders and regulators alike, banks are increasingly realising the need to pursue the total sustainability transformation of their core businesses. However, the attainment of this transformation is a long process that will likely require guidance, according to the report. In this context, PwC sees the following steps as relevant:
  • Incorporating ESG into the bank’s strategy is not yet the status quo;
  • Organisational structure could facilitate ESG integration;
  • Continuous adaptation is key to successful change management; 
  • Progress must be quantified by developing key performance indicators (KPIs) and non-financial reports.
In addition to the aforementioned steps, banks must also consider what ESG means for their risk assessment and management frameworks, according to PwC. The current challenges faced by banks in this area are outlined in the report as well as two key strategic product positioning actions that would catapult banks on their journey as they set out to carve a new path towards long-term value creation.
 
Further details are provided in the full report which can be downloaded via the following link: www.pwc.lu/en/banking/banking-luxembourg-trends-figures-2021.html.