Financial institutions face a major challenge in managing climate risk: regulatory compliance

A recent survey of more than 70 financial institutions worldwide found that 52% see regulatory compliance as a top challenge in managing environmental, social and governance (ESG) and climate risks.

BCT Digital CEO Jaya Vaidyanathan said the fintech firm’s survey covered 77 financial institutions across Asia Pacific, North America, Europe, West Asia and North Africa.

It found that more than 72% of companies plan to spend $500,000 or more on ESG technology. In this tender, more than half of institutions consider keeping up with changing regulations to be their biggest ESG challenge.

Some 48% of respondents cited challenges with conducting risk assessments and mapping relevant ESG factors, while the same percentage saw integrating ESG issues into operational and financial processes as significant hurdles.

For climate risk, the biggest challenges were meeting regulatory expectations for stress testing (67%), accurate accounting for greenhouse gases (56%) and operational integration of climate risk into product lines (50%).

At a news conference on Thursday, Ms Vaidhyanathan said the study confirms institutions are moving away from solely appointing consultants to identify ESG and climate risks towards implementing specific risk management measures.