ESG risk management has become a key focus area for financial institutions as they face increasing pressure from regulators, customers, investors, and shareholders to incorporate (environmental, social, and governance) ESG frameworks. In this Q&A article, Synpulse experts Anu Meha Malik and Rohit Raj discuss the regulatory trends that are expected in 2023 and why it's crucial to have the right partner for ESG risk management.
Our Associate Partner Anu and Director Rohit Raj are both experts in ESG regulatory compliance. They have published numerous articles on the topic, showcasing their extensive knowledge and experience.
A: Financial institutions are under increasing pressure from different groups such as regulators, customers, investors, and shareholders to incorporate ESG frameworks. These frameworks are designed to encourage sustainable investing, attract investors, create customer loyalty, comply with regulations, introduce environmentally friendly products, improve financial performance, and ultimately operate in a sustainable manner.
In addition to addressing environmental risks and climate risks, the European Union (EU) is now also placing emphasis on incorporating the less tangible aspects of social and governance into their risk management approach, moving beyond the more easily identifiable and manageable environmental risks.
Financial institutions must stay current with the rapidly evolving topic of ESG and incorporate it into their business practices in order to remain competitive and valuable to their clients.
A: The Synpulse benchmarking survey conducted in 2022 across some of the leading private banking and wealth management firms in the Asia-Pacific region identified several challenges that these firms face during the implementation of ESG practices:
- Obtaining reliable data to perform ESG analytics
- Embedding a holistic approach for ESG in existing risk management frameworks and practices, including defining ESG roles and responsibilities across different functions in the bank
- Aligning local or regional-specific ESG approach to global standards due to differences in regulatory reporting standards, frameworks, metrics, and ratings
- Determining the materiality of ESG risks identified and how relevant it is to the bank and overall operations
- Setting internal ESG investing standards and goals
- Implementing short-term targets and performance measurement metrics to track progress on a more granular level
- Collaborating with corporate customers and investee companies to drive change and help them develop sustainable strategies
A: At Synpulse, we follow a two-pronged strategy that involves maintaining strong technical expertise and building positive relationships with clients and stakeholders to ensure high-quality ESG projects.
Our expertise in the ESG domain is founded on several pillars. This includes a comprehensive understanding of the financial impact and risks associated with climate change, staying updated on the dynamic regulatory landscape, providing relevant knowledge and skillsets to our project team, and keeping abreast of other market players' approaches and strategies in the ESG space.
Fostering good relationships with our clients is also paramount in ensuring that we fully understand the existing pain points and that all efforts are targeted at solving problems with high efficiency and effectiveness.
A: Synpulse helped international private banks comply with the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority (HKMA) regulations on environmental risk management and climate risk management. This included analysing regulatory papers, improving the risk management framework, defining advisory and investment management processes, implementing controls, conducting scenario analysis, integrating ESG data systems, and providing policy analysis and training to front office staff.
One of the main drivers of success was a lean and adaptable team with extensive experience in ESG risk management and the regulatory landscape. The team's knowledge of the market landscape played a vital role in assisting the bank to identify and prioritise an ESG roadmap to strengthen its value proposition to clients.
A: The project involved several key deliverables such as conducting a gap analysis of MAS, HKMA, and ABS regulations against the bank's current state, enhancing the risk management framework, defining advisory and investment management processes, implementing controls to ensure adherence to these processes, performing scenario analysis, integrating ESG data systems and implementing platforms, conducting policy analysis, and providing training to front office staff.
As the world becomes increasingly conscious of ESG risks, banks must prioritise and establish an ESG roadmap to enhance their value proposition to clients. By doing so, they can not only meet client expectations but also demonstrate their commitment to sustainable practices and responsible investing.
ESG risk management can be challenging without the right partner. Talk to our experts today and find out how you can implement a sustainable ESG framework for your organisation.
