How are financial services firms wrestling with ESG challenges and opportunities?
55 financial services firms globally took part in a survey from Bain & Company and the International Association of Credit Portfolio Managers (IACPM) to answer this question.
They note divergent opinions between European firms, which consider ESG a source of opportunities, and the rest of the world, which rather sees it as a set of risks to be managed.
As the gap between claims and results is widening, this report points out four areas for financial institutions to improve their ESG strategy:
- Aligning stakeholders on decarbonisation: this could mean integrating ESG criteria into risk and pricing models to align the interests of all stakeholders while hedging for the rising climate risks.
- Deciding transition finance priorities: the responsibilities linked to designing an ESG plan based on strategic priorities and providing risk oversight on its implementation should be thoroughly defined and distributed transparently between executives and board members.
- Defining strategies to address customer demand: sustainability departments should rely on business-led, customer-centric teams to deliver sustainable solutions tailored to their clients' needs.
- Augmenting climate risk data analytics capabilities: financial firms need to both upgrade their models and processes to systematically integrate ESG factors and observe sound governance practices to ensure sustainable value creation.
Although they are under constant pressure from regulators, customers and shareholders, market participants' ESG strategies are still undermined by the lack of consensus on frameworks, metrics and regulatory priorities in different regions.