We help Temenos support its customers around sustainability and lending and sustainable finance. So the ESG and business resiliency ratings that we provide are on private companies. In the Temenos context, what is a private company? A private company could be a privately held banking group, it could be an unlisted neo bank, but most commonly it will be the corporate customers of a bank who the bank is lending to.
The challenge that we face as a planet is that 70% of the emissions that the world produces come from SMEs. SMEs are micro businesses and therefore unless there is a way to help SMEs understand the sustainability impact they can’t possibly improve. Now the great thing is banks can do that through green lending and sustainable finance. What’s that mean? Well, what’s the benefit to a bank? The benefit to a bank is if it lends sustainably, it can fund itself more cheaply in the wholesale markets because people want to lend to banks to do good.
The second part is actually it’s been proven in a number of studies, the most recent one of which was published by Rabobank, who studied 20,000 of their SME customers, that SME customers with a poor ESG score were statistically twice as likely to be in arrears on their loans as those customers with a good ESG score. Now why is that? It’s not because there is anything in an ESG metric that is a proxy for credit, but what it is, it’s a proxy for running a business well and better run businesses are better credit risk.
And lastly, it gives an opportunity for a bank to educate its customers around their own sustainability journey and improving the sustainability of their SMEs they make them more resilient, they help them to protect their export markets because ESG is increasingly becoming a non-tariff trade barrier, particularly when selling into the EU, and it also improves the bank’s own S-score in the market itself because it’s leaning in and engaging with its customer base in a positive way. So therefore what we can help Temenos and Temenos’ customers achieve is a win-win-win.
The bank gets cheaper funding, it improves its balance sheet and therefore reduces the number of losses, it improves its S-score.