HomeMioTech ResearchArticle Detail

Will ESG make European banks less competitive (in the short term)?

Shares of biggest European banks underperform compared to their US peers despite showing strong profits. Should ESG take part of the responsbilities?

Field Zhu, Qianchun Yuan, Yireh Tak2024-04-15
ESGSustainable FinanceBank


Over the past 12 months, the five largest US banks experienced notable increases, with JP Morgan Chase leading the way with a 42% jump in its share price. In contrast, HSBC, a European banking giant, only saw a 16% increase in its share price during the same period. BNP Paribas, the largest bank in EU member states, experienced a 15% growth in its share price, indicating potential undervaluation of European Banks compared to their US counterparts.

屏幕截图 2024 04 15 130933

*Shares of JP Morgan Chase outperformed HSBC and BNP Paribas in the past 12 months, as of 12 April 2024; Source: FT, MioTech analysis

A new regulation proposed by the European Banking Authority (EBA) is asking banks to take stock of significant ESG risks and maintain regular oversight, collecting data items like scope 1, 2 and 3 in both absolute and intensity terms. Banks' reliance on fossil fuel businesses will also be assessed as an environmental risk.

At the same time, the United States has been reluctant with new climate-related regulations, with Jerome Powell, the Chairman of the US Federal Reserve pushing back on the possibility of the Fed's climate risk rules.

York Xiong, Director of Financial Institution Solutions at MioTech said that regulatory scrutiny could put pressure on banks in terms of profitability. Apart from higher costs of self-operations, banks will also face rising credit risk as they pass on the liabilities to borrowers, asking them to reduce oil and gas business while increasing renewables use. Banks also need to re-value the carbon-intensive positions on their balance sheet.

Our new report shed light on how the disparities of climate policymaking pathways in the EU and the US might contribute to the competitiveness of banks.

Click "Download Report" to learn more