Is ESG a source of risk or an opportunity?


A recent study by Bain & Company has found that banks globally are split on whether they view various ESG factors as risks or opportunities.

According to ESG Today, for the study, Bain surveyed 55 banks together with the International Association of Credit Portfolio Managers and also carried out conversations with respondents, IACPM’s advisory council, as well as senior risk, finance and sustainability executives.

The survey found that the banks are roughly split between taking ‘offensive’ vs ‘defensive’ postures, with a slight leaning in both cases towards playing offense. While respondents assessed their current ESG positioning as in line to slightly ahead of their peers, a strong majority felt that their stated ambition of future ESG position was significantly ahead of their competitors.

A lot of the differences between whether banks saw it as a risk or an opportunity varied on the region. For example, European banks appeared to be more bullish on environmental transition factors, with approximately 60% viewing these issues primarily as a source of opportunity or even an ‘opportunity to create strategic value’.

Meanwhile, fewer than a third of respondents in the Americas or Asia Pacific shared this view. While more than half of Americas respondents view social issues primarily as an opportunity, most Europeans consider social issues to be more of a risk or a balance of risk and opportunity.

A key initiative being taken by most banks to capitalise on ESG opportunities is the development of new financial products and services.

While the vast majority of banks already offer green bonds and sustainability bonds, 86% and 84%, respectively, the survey found that many more green products are likely on their way, such as green commercial building loans, with 73% of banks expecting to offer these within the next three years, compared to 54% today, green car loans, expected by 65% vs 49% today, and green deposits at 57% expected vs 32% today.

In addition, the survey discovered that banks are at various stages of incorporating ESG risk, such as climate, into their activities. As an example, 65% of banks said that they have yet to integrate climate data and metrics into credit underwriting processes, although around a quarter intend to do so within a year.

The report also found that while over 80% of respondents reported identifying physical and transition risks, only half have actually quantified this exposure – as well as the need to assign roles for ESG accountability.

Bain partner Michael Kochan said, “Incorporating ESG strategies into banking operations requires a delicate balance of managing risk and seizing opportunities. 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.”

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