May 2020

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The rise of Environmental, Social and Governance (ESG) factors in investments requires corresponding changes in capital markets institutions to be successful. These include 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.

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.

Table of Contents

  • Executive Summary
  • Growth and Standardization in ESG
    • – Methodology
  • The Carrot or the Stick?
    • – Driving Shareholder Value
  • What ESG is Worth to Dealers and Custodians
  • Feedback from Senior Executives
    • – Leaders and Followers
    • – Explaining ESG to Clients
    • – What Gets Attention: the E, the S or the G?
    • – Compensation and ESG
  • Expanding the Commitment
  • About the Author
  • About Finadium LLC

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