Banks identify data as the biggest ESG challenge in 2024

As part of KPMG research, 111 banks from more than 20 countries have answered questions on their progress on and challenges with taking new ESG risk drivers into account and meeting stakeholder expectations.

Key hurdles for banks include the availability and quality of data, evolving regulatory requirements, and a shortage of skilled personnel. To address these challenges, forward-thinking banks are adopting flexible target operating models (TOMs) for ESG data, defining data sources and quality hierarchies, collaborating closely with ESG FinTech data providers, and building internal data analysis capabilities. Banks participating in climate alliances like the UNEP FI tend to be more advanced in managing ESG risks and often serve as examples for others. New regulatory standards, such as the EBA’s Pillar 1l disclosure interpretation and the upcoming CSRD requirements, further complicate matters, necessitating active dialogue and flexible technical solutions. Addressing the personnel challenge requires proactive recruitment strategies, with successful firms positioning themselves early in the talent market and establishing transparent ESG risk management frameworks.

Banks recognize the prolonged nature of integrating sustainability into risk management, with most aiming to fully incorporate ESG risk drivers by 2025 or later, contrary to regulators’ expectations. European banks under ECB supervision demonstrate notably higher ambition levels, with over 80% aiming for full ESG integration by 2025. Mature banks adeptly manage regulatory changes by allocating resources, engaging in dialogue with supervisors, and employing flexible prototypes adjusted to industry best practices, particularly in climate risk stress testing.

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