Mexico’s Banorte eyes ESG leadership – and revenues
Bank’s ESG head urges competitors and regulators to respond more quickly to emissions accounting challenge.
Banorte’s head of sustainability believes that the bank’s investment in its environmental, social and governance capabilities could help the bank generate revenue in the coming years.
José Luis Muñoz, who is one of the leaders of the bank’s ESG and investor relations teams, says that Banorte has grown its ESG team to 15 people – equivalent to around a 30% cost increase in the last three years.
“There is increasingly close collaboration internally between Banorte’s commercial, risk and sustainability teams – and we are working together to help customers understand how they can reduce their emissions,” says Muñoz. “We are working to increase our capabilities in terms of sustainable finance to provide sustainability-linked loans, or green loans, to help our clients reduce their own emissions.”
Muñoz believes that Banorte’s ESG leadership in the Mexican banking market will bring increased collaboration with clients to share best practices, encourage them to reduce their own carbon emissions, and increase their disclosure on these areas, alongside a clear opportunity to grow the bank’s sustainable finance business.
Muñoz adds that helping Mexican companies finance the reduction of their carbon emissions would not only generate revenues for Banorte but would help it fulfil its commitment for net zero carbon emissions by 2050.
Banorte was a founding signatory to the UN's Net-Zero Banking Alliance and has been working on measuring and reporting the carbon intensity of its portfolios – the initial step to formulating a medium-term 2030 emissions target – using international science-based methodologies.
Hopefully, we will have stronger regulation that reinforces the push to our own carbon emissions objectives
“The biggest ESG challenge of the past year has been establishing the emissions baseline of today’s portfolio,” he says. “The availability of data from some of our clients – particularly small and medium-sized enterprises and even individuals – is very limited, and this is a key difference between Latin America and developed markets.
“We have been using international best practice on methodologies that enable us to better estimate the emissions profile of a business, based on variables such as the industry sector and the size of the company.”
Muñoz says he acknowledges Banorte’s influence and responsibility as a key player in the Mexican financial market, and this is one of the reasons for its early adoption of international ESG standards.
In addition, Banorte’s large institutional investor base – many of them based in Europe where ESG standards are more developed – is yet another reason for Banorte to align with these standards.
“We were getting more and more questions, questionnaires and requests for meetings about ESG issues – particularly from European-based investors – and that led us to grow our internal capabilities,” he says.
The bank also changed its annual and quarterly reporting approach to combine ESG reporting within an integrated single report – rather than publishing a standalone ESG update.
For example, the bank’s most recent third-quarter report includes the latest on its loan book from a sustainable finance perspective – as well as selected industry exposures (for instance, the oil industry represented 4.6% of total loans).
The third quarter was a strong one: net income rose 30% on an annual basis, to $11.5 billion, while return on equity jumped by 416 basis points to 19.6% compared with the third quarter of 2021.
Muñoz also believes the bank’s compliance with leading ESG reporting standards has had a direct impact on the bank’s equity performance.
“We are members of many international ESG indices – such as the Dow Jones Sustainability Index – and that has improved the liquidity of the stock and how it trades,” he says.
He says that the advantages to Banorte of ESG leadership will be supported by the benefits of a general improvement in ESG standards within Latin American banking.
“Hopefully, we will have stronger regulation that reinforces the push to our own carbon emissions objectives – if the banking industry and national legislation move towards encoding these targets it will help us collaboratively move towards our goals.”