Better risk management, governance structure to improve ESG at private banks: WWF study
TO IMPROVE their environmental, social, and governance (ESG) integration efforts, private banks will need to have a stronger risk-management strategy and develop better organisational culture, governance, and incentives.
While the banks are already making sustainability commitments, there is a need to tailor and integrate these specifically to the reality of private banking, said the World Wide Fund for Nature Singapore (WWF-Singapore), in a pilot study conducted among seven private banks with a presence in Singapore.
The pilot study, which aimed to assess and support the ESG integration of the banks, is part of the launch of the organisation’s Sustainable Private Banking and Wealth Management (Spring) framework on Monday (Jun 5).
The Spring framework measures the robustness of ESG integration in the private banking sector. Developed for private banks and wealth managers, it comprises six pillars – purpose, policies, processes, people, products and portfolio.
The framework was launched on the back of a projected generational wealth transfer of around US$84 trillion by 2045, with 49 per cent of high-net-worth individuals under 40 interested in sustainable investments.
Private banks should integrate sustainability into operations and policies – this includes having measurable targets and increased focus on climate and nature-related risks, WWF-Singapore noted.
A NEWSLETTER FOR YOU
Friday, 12.30 pm
ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
They also need to better incorporate banking best practices such as ESG risk assessments and scenario analysis as part of their processes.
WWF-Singapore noted that, among the private banks surveyed, a majority have only group-level oversight committees.
Meanwhile, there was limited progress on the appointment of dedicated sustainability officers and the incorporation of sustainability considerations into board audit and nomination processes.
WWF-Singapore noted that private banks could benefit from having specialised structures due to their distinctive business model. Furthermore, if the banks do not factor ESG considerations into their assessments, they may be more vulnerable to reputational and regulatory risks.
These considerations also provide an opportunity for banks to understand their clients’ risk profiles and investment preferences, particularly since sustainability is an area for growth.
This comes amid a shift from product-centric strategies to client-centric advisory services, due to rising demand for comprehensive advice and growing interest in sustainable investing, WWF-Singapore said.
To support the delivery of outcomes, banks can consider implementing sustainability-linked key performance indicators. They should also incorporate ESG factors into the client engagement process, to better understand and manage ESG-related risks.
WWF-Singapore said the banks have the potential to make a meaningful impact in advancing sustainability efforts, by assisting clients with ESG-focused strategies, exercising delegated voting and engagement rights, as well as advocating for improved business practices within invested companies.
R Raghunathan, chief executive of WWF-Singapore, said: “Finance is a lever for change that can help deliver an equitable, net-zero, nature-positive future. Private banks manage considerable financial resources for their clients and, therefore, are in a unique position to advise on sustainable products and services.”
Copyright SPH Media. All rights reserved.
