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A financial institution can do so by developing a Environmental and Social Management System, which can be integrated into its existing risk management framework including the risk appraisal process for transactions. A well-developed Environmental and Social Management System can lead to decreased exposure to environmental and social risks, increased market opportunities, and enhanced reputation, which help contribute to the long-term financial viability of financial institution.

Creating Long-Term Value Through Sustainability

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There is a clear business case for financial institutions to establish a management system that incorporates environmental and social risks into their overall approach to risk management. If environmental and social risks are considered too high or cannot be mitigated to an acceptable level, financial institutions can decide not to engage in a financial transaction, even if otherwise it is projected to have a good financial return. Similarly, financial institutions can add value to their clients or investees by helping identify and mitigate E&S risks that could threaten the viability or profitability of their business.

An increasing number of financial institutions are voluntarily adopting international environmental and social standards to identify and mitigate E&S risks, also creating opportunities and harmonizing the requirements for environmental and social sustainability for their clients/investees. These standards facilitate the unique role that financial institutions can play in promoting sustainable development outcomes.

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