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Developing a ESMS is most effective and efficient if it is supported by senior management and integrated with the financial institution’s existing risk management framework. A financial institution can initiate the process for developing a ESMS by establishing a Working Group.

An ESMS includes a policy, a set of procedures to identify, assess and manage environmental and social risks in financial transactions and internal capacity of staff responsible for environmental and social management and investments.

Outcome of E&S Risk Management
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It should be designed to manage the level of environmental and social risk that the financial institution is exposed to through its portfolio, both in terms of the industry sector of its clients/investees and the type of financial transactions. The management of these risks should be tailored to the organizational needs of each financial institution, which are different for banking institutions, leasing companies, microfinance institutions, and private equity funds.

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