S&P Global Market Intelligence

ESG Risk Management in Banks: Getting Ready

Contributors

Denisa Avermaete, Senior Policy Adviser – Sustainable Finance, European Banking Federation

Manuel Pérez de Castro, Group Risk VP – Enterprise Wide Risk Management, Banco Santander and Chair of the EBF ESG Risk Task Force

Steven Bullock, Managing Director, Global Head of ESG Innovation & Solutions, S&P Global Sustainable1

ESG risk analysis continues to be an important strategic issue for global financial institutions as they strive to assess and manage their current and future climate-related risks. Companies and financial institutions will need to be innovative and flexible to address changing regulatory requirements, respond to market drivers and align with global commitments, such as the Paris Agreement. Key to developing a comprehensive and holistic approach to ESG risk management – especially as it pertains to climate-related transition and physical risks – is data collection and data transparency.

10 Key Takeaways

1. Banks are beginning to assess their exposure to climate risks across their investment and lending activities.

2. One of the most prominent drivers of demand for climate data and analytics is the increasing realization that climate risk is financial risk.

3. The lack of comprehensive geo-location information across operations and supply chains creates a significant data gap for climate risk assessments.

4. Acquiring location-specific operational and financial data also poses unique challenges due to disparities in disclosure and the complexity of supply chains.

5. Climate risk assessments need to continue to innovate and evolve into the future.

6. ESG factors are considered a driver that can impact both positively or negatively on existing risk levels.

7. The recent rapid acceleration of ESG risk management is being driven by a combination of regulatory and market drivers.

8. Comprehensive, accurate and connected data is the cornerstone – and the main challenge – for developing methodologies, assessing risks, and finding the opportunities in a more sustainable future.

9. Shared international regulatory principles and methodologies need to be developed to limit the current fragmentation among international, regional, and supervisory regulations.

10. The regulatory community is assessing the prudential treatment of sustainable assets.

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