The process for ESG in banking is ideally embedded into existing client lifecycle management processes with multiple regulations and standards in play.
There are multiple regulations and standards in play for ESG in financial services. In the EU, the Corporate Sustainability Reporting Directive (CSRD) the Sustainable Finance Disclosure Regulation (SFDR), and the EU Taxonomy are the key pieces of legislation. There are also important guidelines coming from the SEC in the USA, from MAS in Singapore, and from multiple other jurisdictions.
There are many ESG compliance standards at play, with the International Sustainability Standards Board(ISSB), and the Task Force on Climate-related Finance Disclosures (TCFD), as well as GRI, UNGC, and more
The process for ESG in banking is ideally embedded into existing client lifecycle management processes, through re-use of common data, leveraging market data, efficient management of customer outreach, and investing in good technology in order to reduce manual effort for as many components of the ESG compliance process as possible. ESG compliance is a key point, with future-proofed regulatory coverages baked into ESG solutions.
Read our latest blog on ESG: A Roadmap to Compliance in 2023
Ideally ESG solutions will be capture CSRD and SFDR information as part of the customer due diligence process. Typically middle office teams are empowered to do much of the data gathering, with specialist areas and clients escalated to expert SMEs.
There are a huge number of ESG ratings providers in the market, with various methods of calculating their proprietary scores. This ranges from analysing public available information, to assessing news reports about firms, all the way to parsing social media mentions to determine user sentiment.
The challenge with the market is that there is a huge variety in ESG scores - what might be a 30 in one solution will be 80 in another ESG solution. The best practice for ESG in banking is to bring the ratings in-house, and to calculate a score based on hard data that is traceable.
Rating models can also be personalised to the Financial Institution’s own risk appetite and world view.
Contact us and talk to one of our ESG experts about how you can manage ESG compliance obligations efficiently and effectively.