Global awareness of the risks and opportunities presented by environmental, social and governance (ESG) and business integrity (BI) issues such as climate change, human rights, bribery and money laundering is growing. As reported by the World Economic Forum, risk trends over the last decade have evolved from issues such as financial failure, fiscal imbalance and energy price volatility to biodiversity loss, cyber security, climate action failure and infectious diseases.
In the financial services sector, risk management is core to a sound financial system. It’s therefore particularly vital for financial institutions to have good governance and procedures in place to proactively address ESG and BI-related risks. As well as managing their own direct risks, financial institutions must also consider their clients’ risks, which if not managed properly, may expose them to either credit, legal, regulatory or reputational issues.
Furthermore, stakeholders such as regulators, investors, NGOs and the public increasingly hold financial institutions to account for the clients they lend to, especially those operating in sectors or countries that give rise to heighted ESG and BI risks. Their vast network and role in deploying funds across different sectors and business types also means they can serve as change agents by promoting responsible practice and sustainable development at scale. Investors are paying closer attention to how financial institutions manage ESG, and factoring this into their investment decisions too. The combination of these factors has resulted in ESG risk management moving up the agenda for many players in the sector.
To support financial institutions within our portfolio as well as the financial services sector more broadly, we are pleased to launch our new ESG Toolkit for financial institutions. This has been developed by drawing on the success of our existing toolkit for fund managers, our experience working in the financial services sector, and our in-depth understanding of the ESG challenges typically faced by financial institutions in the countries where we invest.
The Toolkit provides a practical and easy-to-use guide for environmental and social (E&S) and compliance professionals in commercial banks, microfinance institutions and fund managers who work closely with them. It includes sections on how to build E&S and business integrity (BI) management systems and integrate E&S and BI risk management into a bank’s customer and transaction approval process, sector-specific guidance on providing credit lines to clients, as well as direction on topics such as anti-corruption, corporate governance, land acquisition, prevention of money-laundering and gender-based violence and harassment. We’ve also developed a section that introduces financial institutions to integrating climate risk assessment and governance into their operations, the fundamentals of green financing and gender-smart investing.
We hope you find this Toolkit useful and welcome your feedback. Please email us on esgtoolkit@bii.co.uk.
