With the world moving forward in the path of increased climatic risks, over 72 percent of FIs worldwide expect spending $500,000 or more on ESG technology-enhanced work related to climate risk solutions, probably to cover emissions data tools, transitional risk modeling for climate, and better regulatory reporting tools in the years to come, a recent survey revealed.
The paper examines how global financial institutions consider ESG and climate risk factors into their risk management and investment decision-making processes. On Thursday, BCT Digital and Chartis Research published the results of their detailed ESG and Climate Risk Survey.
The survey was responded to by 77 ESG and climate risk practitioners representing financial institutions that manage assets from $1 billion to $500 billion across APAC, North America, Europe, and the MENA region.
The result shows that 52% of the respondents positioned regulatory compliance as the most paramount obstacle on ESG. Close to 48% of the respondents mentioned risk assessment and mapping as the key ESG problems, while another 48% identified the integration of ESG into operational and financial operations.
The largest challenges to climate risk management are mostly about attaining regulatory stress testing expectations, accounting for correct GHG, and operationally integrating climate risk into product lines.
Most of the companies thus consider its ESG policy quarterly, with an average amount per year that a company is spending from $250,000 to $500,000; firms in North America and Europe spent over $500,000. Spending for the next year is likely to be focused on ESG data and score products, GRC solutions, and governance, risk management, compliance, and regulatory compliance and reporting software.
“ESG and climate risk reporting requirements are not uniform; different countries or regions might have different frameworks and definitions.” This lack of uniformity poses significantly high challenges for any multi-national to work in coherence regarding reporting, Jaya Vaidhyanathan, chief executive of BCT Digital, said.
It also covered questions on retail, corporate and commercial banking, asset management, private wealth management, broker-dealers, cooperative banks, microfinance institutions, credit unions, as well as non-bank financial institutions.
“Compliance with ESG rules is a weak spot for many financial institutions, and data management is central in the compliance process.” “It’s very important to have a fully integrated framework that allows data management across the whole value chain,” said Sid Dash, chief researcher at Chartis.