"Environmental" risk management of banks as a determinant of sustainable financing in EU countries

Authors

DOI:

https://doi.org/10.31617/3.2023(131)04

Keywords:

climate, environmental and management risks; environmental risk management, bank, supervisory authorities, ESG risks.

Abstract

On June 23, 2022, a decision was made to give Ukraine the status of a candidate for membership in the European Union (EU), which involves the transformation of all spheres of life in our country in accordance with the principles and legislation of the European Union. In this context, an important role is assigned to Ukraineʼs compliance with environ­mental, social and corporate governance standards, as well as their financial support (sustainable financing), which are in effect in the EU. The European Commis­sion has recently adopted a number of important documents related to the implementation of sustainable financing policy in EU member states, the key driver of which is the establishment of climate, social and governance risk management systems in financial institutions, primarily banks (Environment, Social and Governance, or environmental spheres, society and management of ESG risks). In accordance with the approaches of the European Union, it is foreseen the implementation of "ecological" risk management in the business strategy of banks; introduction of a mechanism for stress testing ESG risks and determi­ning their impact on capital; ensuring transparency of information regarding "sustainable" risk manage­ment and others. The introduction of these and other measures into the process of integrated risk manage­ment in Ukrainian banks will contribute to their gradual integration into the European environ­mental and financial architecture. The aim of the research is to identify modern trends in the greening of risk management in EU banks, to determine the tools for researching opportunities and the vectors of its introduction into domestic banking practice. The research is based on the following methods of scientific knowledge as: theoretical generalization, analysis, synthesis, abstraction, induction and deduction. As a result of research the key provisions of ESG risk which are implemented by the ECB and European banks, are revealed. The problems of "ecological" risk management in domestic banks were identified and proposals regarding the introduction of the best European banking practices in their activities were developed. It is reviled that banks of EU countries are actively implementing sustainable financing policies, including ESG risk management. In order to find out the degree of implementation of "ecological" risk management in the projection of the sustainable financing policy of Ukrainian banks, a questionnaire is proposed for three analytical blocks of questions, the answers to which will allow to determine their relation to both own and client ESG risks; to identify intentions regarding various forms of bank support for the ecological revival of the country and the solution of climatic, ecological and social problems of society.

Author Biographies

Nataliya SHULGA, State University of Trade and Economics

Doctor of Science (Economics), Professor, Head of the Banking Department

Serhii SAVLUK, State University of Trade and Economics

Doctor of Science (Economics), Associate Professor of the Banking Departme

References

Assi, L. (2018). Sustainable concrete: Building a greener future. https://www.sciencedirect.com › article › pii https://doi.org/10.1016/j.jclepro.2018.07.123

Bingler, J. A. (2020). Climate Financial Risks: Assessing Convergence, Exploring Diversity. https://www.cepweb.org/wp-content/uploads/2020/12/CEP-DN-Comparing-climate-risk-metrics-Final-2.pdf https://doi.org/10.2139/ssrn.3826413

Commission Recommendation (EU) 2023/1425 on facilitating finance for the transition to a sustainable economy. https://eur-lex.europa.eu/legalcontent/EN/TXT/?uri=CELEX%3A32023H1425

Еsgriskguard (2023). https://esgriskguard.com/what-are-esg-risks/

Finance.ua. (2020). The National Bank plans to introduce an assessment of the environmental risks of borrowers. https://news.finance.ua/ua/news/-/483389/natsbank-planuye-vvesty-otsinku-ekologichnyh-ryzykiv-pozychalnykiv

Finbalance (2021). The NBU, together with the IFC, has developed a policy for the development of sustainable financing until 2025. https://finbalance.com.ua/news/nbu-spilno-z-ifc-rozrobiv-politiku-shchodo-rozvitku-staloho-finansuvannya-do-2025-roku

Jian, Zhao (et al.) (2020). Global climate damage in 2 °C and 1.5 °C scenarios based on BCC_SESM model in IAM framework. https://www.sciencedirect.com/science/article/pii/S167492782030071X https://doi.org/10.1016/j.accre.2020.09.008

KPMG. (2021). ESG risks in banks. https://home.kpmg/xx/en/home/insights/2021/05/esg-risks-in-banks.html

KPMG (2022a). ESG-risks-in-banks https://home.kpmg/ua/uk/home/insights/2022/06/esg-risks-in-banks.html

KPMG (2022b). ESG-Risk-Management-in-Banks. https://assets.kpmg.com/content/dam/kpmg/be/pdf/2022/KPMG_ESG-Risk-Management-in-Banks.pdf

Menicucci, Elisa, & Paolucci, Guido (2023). ESG dimensions and bank performance: an empirical investigation in Italy. https://www.emerald.com/insight/content/doi/10.1108/SAMPJ-09-2016-0066/full/html https://doi.org/10.1108/CG-03-2022-0094

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088. https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32020R0852

SASB Standards by industry (2022). https://www.sasb.org/standards/download/

Sustainable Europe Investment Plan. European Green Deal Investment Plan. (2020). https://ec.europa.eu/commission/presscorner/detail/en/qanda

Sustainable finance package. European Commission (2023). https://finance.ec.europa.eu/publications/sustainable-finance-package-2023_en

Sustainalytics (2023). https://www.sustainalytics.com/esg-ratings

TCFD Status Report. October 2022. https://assets.bbhub.io/company/sites/60/2022/10/2022-TCFD-Status-Report.pdf

Zhang, KQ (2017). Environmental Performance and Financing Decisions. MDPI. https://doi.org/10.3390/su9122260

Weber, O. (2017). Corporate sustainability and financial performance of Сhinese banks. https://www.emerald.com/insight/content/doi/10.1108/SAMPJ-09-2016-0066/full/html https://doi.org/10.1108/SAMPJ-09-2016-0066

Bortnikov, H., & Lyubich, O. (2022). Management of ESG risks in Ukrainian banks. Financial and credit activity: problems of theory and practice, Vol. 6, 47. https://fkd.net.ua/index.php/fkd/article/view/3885

Vasylchuk, I. (2019). Transformational possibilities of finance in ensuring the transition to sustainable development. Scientific notes of the National University "Ostroh Academy". "Economics" series. Ostrog: NaUOA, March 2019, 12(40), 81-85. https://doi.org/10.25264/2311-5149-2019-12(40)-81-85

Vovchenko, О. (n.d.) ESG strategy as the basis of sustainable development risk management in banks. Economy and society. Issue 50/2023. https://economyandsociety.in.ua/index.php/journal/article/view/2458/2377

Krasnova, I. V., Primostka, L. O., & Lavrenyuk, V. V. (2021). Climate risks in financial business. Problems of the economy, 3(49). https://www.problecon.com/export_pdf/problems-of-economy-2021-3_0-pages-140_146.pdf https://doi.org/10.32983/2222-0712-2021-3-140-146

Ministry of Ecology and Natural Resources of Ukraine (2021). https://kharkivoda.gov.ua/content/documents/1182/118159/Attaches/regionalnadopovid2021harkivska_oblast.pdf

NBU (2021). The National Bank presented the Policy on the development of sustainable financing for the period up to 2025. https://bank.gov.ua/ua/news/all/natsionalniy-bank-prezentuvav-politiku-schodo-rozvitku-stalogo-finansuvannya-na-period-do-2025-roku

Prutska, O. (2021). Modern policy of the NBU regarding the development of sustainable financing. Economy and Society, 34. https://economyandsociety.in.ua/index.php/journal/article/view/979

TSN (2023). The beginning of the end: what major decision was made at the UN climate summit and how it will affect the planet. https://tsn.ua/svit/pochatok-kincya-yake-vazhlive-rishennya-uhvalili-na-klimatichnomu-samiti-oon-i-yak-ce-vpline-na-planetu-2471026.html

Khutorna, M., Rudenko, M., & Vovchenko, O. (2023). The market of investment financial services in the conditions of environmentalization of economic life and the establishment of a sustainable development economy. Financial space, 1, 97-126.

Published

2023-12-22

How to Cite

SHULGA Н., & SAVLUK С. (2023). "Environmental" risk management of banks as a determinant of sustainable financing in EU countries. Foreign·trade:·economics,·finance,·law, 131(6), 56–71. https://doi.org/10.31617/3.2023(131)04

Issue

Section

WORLD ECONOMY