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Beyond compliance: the long-term meaning of ESG for lenders

As regulatory requirements for corporate responsibility, environmental, social and governance (ESG) continue to take shape around the world, commercial lenders are now turning their attention to the most immediate challenge – compliance.

But ESG principles deserve more than a short-term, tactical solution. The priority for lenders should be to drive new, more responsible ways of thinking and acting deep into the lending process.

That means embracing the sentiments of ESG and building the framework, the processes and the controls you need to make the right lending decisions every time, based on all the right ESG data.

But how to pull in that data? Although many banks have already developed an ESG rating methodology for large public companies, there’s not much information available to date on the unlisted private companies that make up a large percentage of many loan portfolios.

That leaves lenders with a lot of responsibility for intelligence gathering. And without the specialist knowledge or experience required, firms may struggle to educate their customers on the implications of ESG for creditworthiness, prices and renewals. They could also slow down the lending process with potentially weeks of manual work.

Therefore, as well building ESG into your lending process, you need to keep the process as automated as possible. And that’s where technology comes in.

With a single end-to-end solution for commercial lending, you can define your ESG processes and bring them to life across the loan origination, credit assessment and ongoing monitoring stages of the lending life cycle, while quickly identifying and integrating appropriate data to support human analysis.

Despite the complexities involved, technology allows you to integrate ESG into the lending process without compromising efficiency. The most advanced systems can also help you balance compliance with profitability and consider the potential impact of deals on margins as well as sustainability.

Ultimately, the right system will help you create a framework for managing ESG that embraces its principles, puts them at the heart of all your lending decisions – and makes them as integral to your loan process as the assessment of financials and KYC checks. It will also give you the flexibility to evolve your approach as regulatory requirements shift or grow.

Whatever your environmental, social and governance objectives, you can realize them loan by loan and meet profitability targets, too. But first you need to make your lending process sustainable – by looking beyond compliance and embedding long-term ESG thinking into every workflow, alert, action and decision.

The technology already exists to make that happen. So, what are you waiting for?


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