In a new report published on companies that are best positioned to sustain a long-term competitive edge, Goldman Sachs has identified BBVA, HSBC, Morgan Stanley, National Australia Bank, Standard Chartered, Banco Bradesco and HDFC from the banking industry.
"We identify two BRICs-listed companies, Banco Bradesco and HDFC, as leaders on financial returns and industry positioning with upward momentum in their ESG scores. These are included in our GS Sustain focus list as best of the BRICs leaders," the Goldman Sachs report stated.
While including these seven companies to its GS Sustain focus list, Goldman Sachs said these are best positioned to sustain competitive advantage over the long term through a combination of metrics such as return on capital, industry positioning and environmental social and governance (ESG) performance.
While HDFC has been named among the best seven companies from the banking industry, two other Indian banks ICICI Bank and State Bank of India have also figured in the broader list of companies in this segment.
"The ability of emerging market banks to improve ESG performance shows a strong relationship with improvement in returns. This suggests that banks focused on enhancing their management quality are better positioned to deliver sustainable high returns," the report stated.
The report also highlighted that ESG issues were becoming increasingly important for global banks and Goldman Sachs believes that effective management of environmental, social and governance issues is key to sustaining competitive advantage.
Besides, the report stated that for all banks effective corporate governance and management is also critical to sustain good performance.
"Banks need to recruit, develop and retain talent, meet the needs of their customers, manage complex regulatory environments and create corporate governance that aligns employee goals with those of shareholders," it added.
Goldman Sachs has also created a new category called 'Best of the BRIC's within the mature industries which highlight potential leaders of the future. This comprises stocks which, in addition to sustainable returns and superior industry positioning, have improving ESG scores, suggesting that within a few years they would be leaders on all measures.
Meanwhile, the report stated that the global banking landscape has changed dramatically over the last two decades.
In 1991, over half the market cap of the worlds top 20 global banks was domiciled in Japan (54 per cent), followed by the United States (18 per cent) and Europe (13 per cent).
But, at present 31 per cent of the market cap of the top 20 is listed in Russia and China. Europe's share of the top banks has more than doubled to 36 per cent, and the US has increased to 23 per cent, while Japan's share of equity market cap among the top banks is now only 9 per cent.
