In addition to consolidation, the main themes for global banking M&A in 2022 are likely to be digitalization, sustainable finance, a quest for scale, desire to improve asset quality, competition among acquirers, and regulatory demands.
Though all themes may not be prevalent for all geographies, however, they may be potential topics of discussion in board rooms of many banks.
After discussing digitalization as a global M&A theme, we continue with “ESG assuming a central role” as a second topic.
ESG in the global banking sector
With investors, customers and regulators demanding greater evidence of sustainable, purposeful business practices, banks are taking ESG seriously.
More than 2703 banks representing over 45 percent of banking assets worldwide have joined the Principles for Responsible Banking framework, to ensure strategies and practices align with the UN Sustainable Development Goals and the Paris Climate Agreement. Many banks have also been involved in regulatory discussions around taxonomy and green finance.
Sustainability is increasingly embedded in market offerings, with commercial and retail customers able to choose from a growing variety of ESG-linked funds, bonds and assets. Retail banks are creating new sustainable banking and investing products and services, such as green home improvement loans, carbon neutral banking and sustainable exchange traded funds. Wealth management arms are moving towards ESG informed investing, while capital markets are adopting ‘green underwriting’.
However, many banks still possess significant profit-generating ‘brown’ assets and must balance their ESG ambitions against shareholders’ desire for strong returns.
In addition to financial viability, future deals will increasingly be viewed through an ESG and social policy lens, as stakeholder scrutiny rises. ESG is no longer a box ticking exercise, and businesses that demonstrate environmentally and socially sound operations, and good governance and sustainable products, will be more attractive deal targets.
Bank’s asset management units are likely to pivot finance towards greener and more sustainable companies. One leading North American bank has recently acquired a US fintech specializing in developing ESG investment portfolios, to help their own financial advisors customize investments in ESG.