Every investor needs a trusted custodian bank, especially in times of change. The past few years have seen sustainability move from a buzzword to the bottom line. How do these specialised financial institutions facilitate their and clients’ good business journeys?
If your company utilises the services of a custodian bank, sustainability should be on your agenda. Custodian banks safeguard massive amounts of capital from, among others, insurance companies, issuers or companies and retirement funds. These specialised financial institutions are custodians of their client’s assets (cash, shares, bonds). The custodian bank itself must operate sustainably while offering sustainable services to its clients.
Want to know more about custody services? Read here.
Custodian banking is a risky business
To ensure their sustainability, custodian banks must prioritise risk management. These multi-faceted banks with stakeholders worldwide are exposed to operational, regulatory, compliance and transaction risks. A key example is cybersecurity. This requires sound data management practices by the custodian bank to ensure the privacy of clients’ information.
Custodian banks also play the role of a trusted intermediary, which necessitates confidentiality and fiduciary duties.
Failure to fulfil these duties could result in custodian banks incurring significant financial losses and reputational damage. Good corporate governance is the cornerstone of robust risk management. Against this backdrop, the board of directors of a custodian bank plays a fundamental role in ensuring the correct processes are in place, sufficient risk oversight is provided, and business is conducted ethically.
Empowering clients with sustainable services
Services provided by custodian banks evolve as investors seek information or more in-depth analysis of new investor regulations and trends, including sustainability.
Stewardship or active ownership is a fundamental tool in an investor’s approach to sustainable investing. Because investors hold shares in a company, they have the right to vote on company decisions. Investors can vote against unsustainable business decisions, for example, a proposed takeover of a coal mine or an investment in oil exploration. They can also vote for sustainable practices such as fair remuneration and a climate action plan.
In short, stewardship is when an investor uses their influence as a shareholder to encourage good corporate behaviour in companies.
Custodian banks play a stewardship role as they perform proxy voting duties on investors’ behalf and report on how investors have voted.
High-quality data processing and reporting by the custodian bank foster transparency and accountability. This type of reporting is increasingly important as it provides evidence of active ownership and how seriously an institutional investor is taking its fiduciary duties and sustainability mandate from its clients.
Making ESG meaningful
Sustainable investing has become a top priority for investors around the globe, driving a growing demand for ESG (Environmental, Social, and Governance) data and analytics. Institutional investors, however, often face challenges with navigating multiple ESG data providers and dealing with a lack of transparency.
In response to these challenges, some custodian banks, like RMB, have developed innovative solutions to offer comprehensive ESG analytics and risk monitoring, helping investors make more informed and sustainable investment decisions.
They have created easy interactive dashboards that measure numerous companies’ ESG performance against benchmarks, making sustainability data more meaningful. In this way, a custodian bank can assist its clients with the necessary data, metrics and tools to pursue sustainable and financial goals.
Sustainability is no longer a buzzword. It’s here to stay. Is your custodian bank future-proof?
Further reading
RMB
Sources
ESG Investor: Shining a Light on the ESG Universe
FasterCapital: Custodian bank: The Essential Role of Agent Banks in Custodian Services update
HSBC: The role of custodian in a sustainable world
KPMG: Cybersecurity in ESG
Nasdaq: How Are Custodian Banks Navigating Risk on a Global Stage?
PRI: Stewardship
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