Arguably sustainability factors have always been part of sound risk management. However, with the increase in impacts and importance of sustainability, and particularly climate change, financial regulators are now stepping in to recommend or require that banks identify, manage and mitigate related risk exposures.
This growth of incorporation of ESG in credit risk dates back to 2016 with the support of the United Nations Environment Programme Finance Initiative (UNEP-FI), as it launched initiatives to enhance the transparent and systematic integration of ESG factors in these assessments. Since then, it’s been recognized that poor management of Environmental, Social and Governance (ESG) factors can lead to financial, reputational and regulatory risks that may result in negative financial consequences for companies and a bank’s loan book. As evidence consolidates around the fact that ESG factors can affect financial performance and credit concentration risk in banks, ESG considerations are gaining prominence across banks and risk management professionals, but also regulators such as the European Banking Authority (EBA) and the European Central Bank (ECB).
The course helps participants understand the overlap between ESG, particularly climate change, financial disclosure, and credit risk. It clarifies how ESG can be integrated into bank’s traditional risk frameworks. It goes in-depth on how ESG factors can drive credit risk, and how leading banks are adapting to better identify, monitor and mitigate these.