ESG Risk Survey for Banks (January 2025)

Regulatory Compliance TrendsPage 6

Financial institutions are increasingly adjusting their expectations for full regulatory compliance, with projections for meeting these standards consistently dropping. Only a small minority of banks expect to achieve full compliance by end-of-year 2024, signalizing a trend of mounting caution and pessimism regarding the speed of regulatory implementation.

Impact on Traditional Risk TypesPage 14

Most banks focus on ESG's impact on credit risk, yet other categories like market, liquidity, and operational risks are often neglected. There is a strong institutional push to shift from isolated stress testing to a more integrated, holistic approach within existing bank-wide risk models.

Biodiversity and GreenwashingPage 22

Awareness of biodiversity risk is growing, but it remains under-quantified with few established metrics. Similarly, while greenwashing is recognized as a significant risk, most institutions lack sophisticated, documented processes to effectively monitor and prevent greenwashing accusations.

Key Challenges in ESG IntegrationPage 8

Institutions identify data availability and quality as the most persistent hurdles. Integrating ESG factors into traditional risk models remains a top challenge, exacerbated by a lack of specialized staff knowledge, although internal training and hiring efforts are beginning to make progress in bridging these gaps.

Quantification of Environmental RisksPage 10

While partial quantification of environmental risk drivers—such as extreme weather and resource scarcity—is improving across the industry, full quantification remains elusive for the vast majority of institutions due to complex impact chains and inadequate data.

Capital Requirements and Stress TestingPage 16

Approximately one-third of surveyed banks have introduced Economic Capital Adequacy Plan (ECAP) buffers, typically under 2%, to account for ESG risks. Meanwhile, NGFS scenarios remain the industry standard for climate stress testing, though banks are encouraged to augment these with institution-specific idiosyncratic shocks.