Incorporating ESG into mainstream banking is becoming integral in assessing the performance of banks; not just in meeting compliance, but for investors and Foreign Direct Investment (FDI) opportunities within the banking sector. The financial sector as an enabler of economic growth will need to re-imagine how they finance economies to ensure that amplified emphasis on environmental, social and governance (ESG) sensitivities are taken into consideration. Institutional investors especially are now very aware of the growing importance of ESG factors in financial matters and investment decisions.
Investors are becoming concerned about the effects of climate change, extreme weather, and regulatory compliance. Investors are also becoming concerned about social contracts and relationship of organisations to their communities and are obviously paying heed to the dramatic increase in ethical consumerism that is driving how consumers choose products in the market.
Above all, diversity, inclusivity, and stakeholder activism are informing values attributed to organisations by ESG investors. To stay relevant and competitive, integrating ESG has become essential and critical to the long-term survival of banks because of the competing imperative of ESG-aligned funding.
The Essentials of ESG-Aligned Investments
Proponents seeking investments in ESG funds will typically seek information about ESG performance. The ESG performance is an integral part of corporate disclosures which are made through sustainability/ESG reports. The corporate ESG Report provides an understanding of an organisations ESG performance. The report outlines progression in ESG initiatives over time, benchmarked against local, national and/or global standards.
It also outlines measures wherein compliance has been met, is yet to be met and where they fall short of compliance. Generally, organisations will highlight partnerships with environmental and social causes, as well as internal or third-party assessments on employee satisfaction, development, and employer turnover. The best reports will appeal to a wide range of stakeholders in non-technical language including company vision, mission and message from the CEO or Governance Board.
To attract ESG investment, banks will especially need to highlight how they meet the Sustainable Banking Principles and their ESG performance into their Annual Reports, and that they are fully compliant with the Sustainable Banking Reporting requirements. To enhance credibility, ESG reports can also be independently assessed to verify disclosures and win confidence of stakeholders.
How can banks integrate ESG into their operations?
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