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

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.