ESG-STRATEGY AS A BASIS FOR SUSTAINABILITY RISK MANAGEMENT IN BANKS
Abstract
The article is devoted to the topical issues of determining the directions of implementation of the ESG-strategy in the business model of commercial banks, taking into account environmental, social and managerial risks, which have been exacerbated by the current crisis. ESG risks are defined as those associated with environmental, social, and corporate governance risks that affect the financial stability and reputation of banks. In particular, these are risks caused by environmental changes or climate change; risks associated with negative impacts on human capital or the social environment; and risks arising from insufficient quality or efficiency of management of the bank or its counterparties. Taken together, these are factors and risks associated with them that reflect the probability of both positive and negative impact on the financial results or solvency of the bank, its customers and the sustainable development of the country. The author substantiates the need to take into account ESG-risks in the risk management system of banks in terms of regulatory requirements, the impact of ESG-risks on assets, resources, profits and reputation of the institution, and the use of new strategic opportunities for integrating ESG-risks to achieve sustainable development goals. Approaches to the systematization of methodologies and tools that allow assessing the current and future impact of ESG factors on the sustainable development of banks are streamlined and the need to use ESG ratings and indices to assess the sustainability of banks is determined on the example of the ESG Transparency Index 2020. The author proposes four stages of the process of implementing ESG-strategies in the business model of banks: determining the material ESG factors for the bank's business model; calculating the economic impact of specific ESG initiatives and implementing the best combinations in terms of resource-intensive initiatives and high returns; building an ESG-strategy with the integration of ESG opportunities into the overall business strategy and operating model; designing a roadmap for each initiative and agreeing on an implementation plan with the management. The author identifies relevant aspects of ESG-risk management in crisis conditions to reduce financial risks of the institution, meet the expectations of customers and investors, and enhance reputation and brand.
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