The global financial industry is preparing to make significant investments in ESG (environmental, social, and governance) technology as climate-related risks continue to escalate. A recent survey conducted by BCT Digital in collaboration with Chartis Research has revealed that over 72% of financial institutions worldwide are planning to allocate substantial funds, ranging from $500,000 and beyond, towards the enhancement of ESG technology to address climate risk solutions.
The survey, titled ‘Chartis Market View: ESG and Climate Risk Survey’, delved into how financial institutions are integrating ESG and climate risk factors into their risk management and investment decision-making processes. The study gathered insights from 77 ESG and climate risk practitioners representing financial institutions with assets under management between $1 billion to $500 billion across the APAC, North America, Europe, and the MENA region.
A key takeaway from the survey was that regulatory compliance emerged as the foremost challenge in the realm of ESG, as indicated by 52% of the respondents. Additionally, 48% of the participants highlighted risk assessment and mapping relevant ESG factors, while the same percentage viewed the integration of ESG into operational and financial workflows as significant hurdles.
When it came to climate risk, the primary challenges identified were meeting regulatory stress testing expectations (67%), accurate greenhouse gas accounting (56%), and integrating climate risk operationally into product lines (50%).
The research also revealed that a majority of financial institutions review their ESG strategies on a quarterly basis, allocating an average annual budget of $250,000 to $500,000 for this purpose, with North American and European institutions showing a propensity to exceed the $500,000 mark. Furthermore, the upcoming year’s investments are anticipated to focus on ESG data and scoring products, governance, risk management and compliance solutions, and regulatory compliance and reporting tools.
Jaya Vaidhyanathan, CEO of BCT Digital, commented on the challenges posed by the lack of uniformity in ESG and climate risk reporting standards, noting the difficulty it presents for multinational corporations striving to maintain consistent reporting across different countries and regions.
The survey encompassed various industry segments, including retail, corporate and commercial banking, asset management, private wealth management, broker-dealers, cooperative banks, microfinance institutions, credit unions, and non-bank financial institutions. Sid Dash, Chief Researcher at Chartis, emphasized the critical role of data and data management in the compliance process with ESG guidelines, advocating for a fully integrated framework that enables data management across the entire value chain.
The findings of the survey shed light on the pressing need for financial institutions to align with ESG and climate risk imperatives, given the intensifying challenges posed by climate-related risks and the increasing emphasis on sustainable and responsible investing.
This article originally appeared on Living Media India Limited. For reprint rights: Syndications Today.