ESG risks in banks

Climate risk, environmental risk, social risk: how can banks review the integration of ESG factors into their risk management?

How can banks review the integration of ESG factors into their risk management?

ESG risk for banks - flower

Find out more in our survey how financial institutions can assess their position compared to their peers. 

Environmental, social and governance risks, generally referred to as ESG risks, have attracted a great deal of attention in the last few years, from both the public and regulators. This makes it increasingly important for banks to integrate ESG in their risk management framework.

The email format is incorrect. This field is required Incorrect email format. Please enter corporate email address.
This field is required
First name
This field is required
Last name
This field is required
This field is required
This field is required

Banks see themselves faced with stricter reporting requirements on ESG risks

By now, an increasing number of financial institutions had begun to integrate such risks into their business models, although they face challenges in disclosing and reporting them to the relevant authorities as the requirements that apply have become stricter and more precise.

For more information on effective strategies for banks to use opportunities and mitigate ESG risks read our publication ESG risks in banks.

Are banks meeting the increasing requirements?

Well, in practice, how do banks do this? Are they succeeding in incorporating regulatory expectations in their risk management framework? The ECB released a survey in March 2022 in which all systemically important financial institutions (SIs) directly supervised by the ECB had to outline their progress with regard to ESG risks.

To assist the participating banks in this process with more in-depth insights, we have developed a benchmark survey that is largely based on the ECB survey but also includes additional topics. We included the survey responses from the 33 financial institutions in our English-language whitepaper: "ESG Risk Management in Banks".

KPMG benchmark survey on the ECB's 13 expectations

The survey’s main focus is on the ECB's 13 supervisory expectations regarding climate and environmental risks in a bank’s strategy and organization, overall risk management and framework, internal and external reporting, as well as risk regarding type-specific expectations.

Conclusion: Banks place a particularly high priority on climate-related risks

In general, banks prioritize climate-related risks to a particularly high degree, while they place less emphasis on environmental risks (e.g., biodiversity loss), social risks, and governance risks, to varying degrees.

Possible reasons include the increasingly complex cause-and-effect relationships related to environmental and social risks in contrast to climate-related risks. Consequently, it may be harder banks to understand these risks and to embed them in their risk management.

All insights and potential action areas are presented in our whitepaper: "ESG Risk Management in Banks".

informative image