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Case Study — 13 Nov, 2023
Highlights
To inform green finance lending and creditawarding policies, frameworks need to consider sustainability risks and opportunities, as well as credit-related factors. Extensive data is needed to gain a holistic overview
Customer Type
Australian division of a top-tier Chinese state-owned commercial Bank
User Base
Chief Sustainability Officer, Green finance product management team, Risk management team
Background
The banking sector has assumed a central role in facilitating the shift towards a sustainable, resilient, and low carbon economy, driven by the increasing prominence of green finance. Global commercial banks have reinforced their dedication to green finance initiatives, particularly in sustainable lending, including green and sustainability-linked loans. To reflect sustainability impact and risk appetite, banks are adopting future-proof frameworks that integrate sustainability and credit considerations into their lending decisions and credit awarding policy.
A sustainable finance framework helps build trust, credibility, and accountability with investors, regulators, and stakeholders while contributing to the bank's long-term sustainability goals. Recognizing the need for a robust approach to sustainable lending, the Australian branch of a top-5 Chinese state-owned bank client (hereafter referred to as "the client") reached out to S&P Global Market Intelligence to support the bank's preparation of a green finance framework based on the following three dimensions:
S&P Global Market Intelligence's solution drew on a holistic set of sustainability analytics, financial and industry data, and macroeconomic indicators. This framework provided a solid backbone for a future-proof green finance strategy.
Pain Points
The green finance team of the client approached S&P Global Market Intelligence, looking for an end-to-end solution built on expertise in banking, green finance, and industry expertise.
The client team identified various gaps in information, data, and analytics on their way to a green finance framework for a sustainable lending business. In particular, the client wanted to gain insights on:
With external support, the client wanted to obtain this information to establish a robust, sustainable lending framework, ensuring transparency, relevance, and authenticity at every journey step. The client had a history of working with S&P Global and turned to S&P Global Market Intelligence to learn more about the firm's offering.
Solution
Sustainability specialists developed an integrated solution along the three dimensions of target regions, industries, and products. The approach empowered the client to set up their future-proof lending business practice for green and sustainability-linked loans.
Identify material sustainability issues and relevant KPIs for green finance. |
The project team helped the client map environmental, social, and governance issues with financial materiality within the industries most relevant to the bank's portfolio. This included utility scale renewables, oil and gas upstream, downstream, retail, commercial real estate, and transportation. The sustainability specialists identified industry-specific KPIs to be used by the client for:
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Assess the macroeconomic outlook. |
The project team conducted an evaluation of significant macroeconomic risks that could influence the client's lending business customer base. Specialists provided a growth outlook for industries relevant to the Australian economy, incorporating a thorough examination of key financial metrics like compound annual net profit growth rate, capital expenditure, and revenue. Throughout the analysis, the project team utilized S&P Global Market Intelligence's internal solutions and data resources, including proprietary economic outlook reports, comparative industry analytics, and Purchasing Manager's Index (PMI) data. |
Examine key drivers for green finance. |
Based on a thorough understanding of the sustainable finance market context, the project team outlined potential levers and opportunities for the client, such as crucial initiatives and coalitions, regulators' provisions, and best practices of peers in the banking industry. This included case studies of Australian peers on how they perform frontline lending business activities, design sustainability-related/green finance products, and avoid greenwashing based on Australian frameworks and principles. |
Develop a scenario analysis. |
The sustainability specialists assessed investment trends of target industries, particularly energy and transportation, under different plausible climate and energy scenarios, using proprietary S&P Global Commodity Insights models. This included, for example, quantitative analyses to predict investment volume across all significant sub-sectors and technological routes of the energy industry (e.g., Solar PV, Offshore Wind Capacity, Hydrogen Generation) under different climate scenarios from 2023 to 2050. |
Summarized report informing strategy. |
The deliverable was crafted clearly and concisely, presenting a comprehensive summary of all critical points. It informed the client's practical roadmap, distilling critical insights on KPIs for sustainability risk monitoring, local green finance initiatives, sector-specific challenges, material issues, macroeconomic stress factors, and green finance product design metrics. The document equipped the client with additional tools and knowledge needed to make informed decisions and drive their sustainable lending business forward, ensuring that every step is purposeful and aligned with their sustainability goals. |
Key Benefits
The collaboration between the client's green finance team and S&P Global Market Intelligence reflected S&P Global Market Intelligence's longstanding commitment to bridging information gaps. With a clear focus on key performance indicators, local policy landscapes, sector-specific challenges, and meaningful analytics, this partnership paved the way for responsible and impactful green finance solutions within the client's business.
The client decided to work with S&P Global Market Intelligence given these key differentiators:
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