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Lenders Divided on Addressing ESG Integration: Survey

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Banks worldwide are split on how they manage ESG and climate risks, according to a new report by consultancy Bain and Company.

The study of 55 International Association of Credit Portfolio Managers (IACPM) members with total assets of more than US$40 trillion found that 65 per cent them hadn’t created a primary role that is accountable for “identifying and addressing climate risks within their operations”, the report stated. Additionally, 55 per cent said there are still “unclear roles and responsibilities for managing climate risk between their companies’ business and corporate functions”.

While ESG investing has rocketed up financial institutions’ agendas, the companies have found it more of a struggle to account for the sustainability performances of their assets and their own operations. It’s a situation mirrored by the corporations and instruments in which they invest.

Without rapid improvements, the shortcomings in integrating ESG processes is likelier to intensify as more green- and sustainability-linked products are launched: Bloomberg estimates that a third of all fund allocations will have an ESG focus by the middle of the decade.

“Incorporating ESG strategies into banking operations requires a delicate balance of managing risk and seizing opportunities,” said Michael Kochan, partner in Bain & Company’s Financial Services practice. “The gap between ESG aspirations and results has widened for many financial services institutions, despite increased pressure from stakeholders. Winners will focus strategy to create tangible value from climate-related products, services, and consulting.”

The Bain study also found:

  • 40 per cent of lenders surveyed said they didn’t embed accountability within their business lines;
  • 83 per cent expect more influence from regulators;
  • 67 per cent expect more influence from customers;
  • 53 per cent expect more influence from shareholders.

Bain identified four areas in which banks could improve their performance, one of which was to augment climate-risk data analytics capabilities.

These risk factor should be integrated “into core banking processes, leading to sustainable long-term value creation”, the report stated.

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