Finadium: ESG is Changing Capital Markets: Services, Revenues and Outlook

This report presents how Environmental, Social and Governance (ESG) factors are impacting capital markets. Much attention has been paid to investment trends, but ESG in investments requires corresponding changes in banks, service providers and market infrastructure to be successful. A primary survey of senior capital markets executives combined with a cost/benefit analysis shows the current state of the industry.

Adopting ESG for capital markets firms includes not just reporting but a willingness, or requirement, to conduct business in ways that are ESG compliant. Some of these changes are superficial while others entail broad-based shifts in how professionals and firms think about ESG and their firms’ objectives, not to mention how individuals are compensated.

Our review of market literature shows that the majority of ESG analysis to date has focused on the investment process, including ESG factors, proof of good deeds and shareholder oversight. Less attention has been paid to the service providers that must be ready to make ESG happen. Investors can purchase what are deemed ESG compliant securities, but their brokers, custodians, data providers and collateral counterparties must be able to deliver on their end for the process to run smoothly.

This report looks at how, where and why ESG is changing capital markets. From the UN’s Principles for Responsible Banking to new directives established for internal decision making, we track how much change has occurred, how much more is likely into 2021, and the level to which action is or is not being taken, despite nice words.

Putting definitions around the impact of ESG in capital markets should serve to help decision makers and industry practitioners evaluate their own positioning. This can be viewed through the professional lens of whether supporting ESG investing helps a firm’s employees and shareholders make more money, and the moral lens of whether this the right thing to do. We further seek to identify the point where there is no distinction between the two.

This report should be read by any participant in investments and capital markets, from asset managers to dealers to custodians and their service providers. It is a broad-based look at an industry trend that will continue to be on the rise once the acute COVID-19 pandemic has passed.

A direct link to the report for Finadium research clients is https://finadium.com/finadium-report-desc/esg-is-changing-capital-markets-services-revenues-and-outlook/

For non-subscribers, more information is available here.

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