Recently, Switzerland’s second-largest bank, Credit Suisse, collapsed after more than 160 years of its historic existence.
Credit Suisse’s unexpected demise sent shockwaves across the global banking structure and cast a dour shadow on the all-time renowned Swiss banking system as well.
“Credit Suisse’s … willingness to engage with clients that some other banks avoided…lost billions of US dollars and compounded the sense of an institution that didn’t have a firm grip on its affairs. Many fed-up customers voted with their feet, leading to unprecedented client outflows in late 2022..”
(The Business Times, Singapore-Credit Suisse is in crisis. What went wrong? March 18)
The Wall Street Journal:
“Credit Suisse was deeply integrated into the global financial system, working closely with a number of banks and institutional investors. European banking stocks tumbled this past week due in part to investor fears of contagion, investors said. On a broader level, the problems of Silicon Valley Bank and Credit
Suisse have led investors to think that the Federal Reserve might pause or scale back its plans to raise interest rates further to tame inflation.”
(Caitlin McCabe & Josh Mitchell – WSJ -Why Is Credit Suisse in Trouble?)
The Credit Suisse incident also had an unexpected fallout on another, seemingly unrelated sector: The global ESG assets.
According to Ernst & Young, the ESG-friendly fund flows projected by 2025 (i.e. “Projected assets under management with a focus on ESG by 2025”) are a hefty US $ 53 trillion, a massive 232% growth from 2016’s 22.8 trillion. However, almost by the end of 2021, total assets under ESG funds grew to a high of $51.7 trillion. In other words, the projected asset values for 2025 were within reach much earlier.
Coming back to the times of Credit Suisse’s (and some Silicon Valley banks’) collapse, the total ESG assets saw a fall of 35%, declining to $33.3 trillion by end-March 2023 (Data: Refinitiv Lipper).
Though by April 2023, funds began to flow back to ESG with robust demand for ESG thematics such as biodiversity and climate transition according to Charles Boakye, Jefferies Financial Group Inc. The demise of Credit Suisse had impacted an already growing image of the ESG asset industry.
Why would a bank’s collapse impact the ESG sector?
ESG investors prefer low-carbon, low-energy consumption sectors. Since banking is a low-energy emission industry, unsurprisingly, ESG investors have a high preference for banking sector shares.
“Investors sold out of ESG funds in March when the collapse of Silicon Valley Bank sparked fears about the health of lenders and Switzerland’s second-largest bank, Credit Suisse, was forced into an emergency rescue.” –
(Tommy Wilkes and Patturaja Murugaboopathy via Reuters -April 6, 2023)
