Central banks as regulators are responsible for providing support and guidance to regulate banks and financial institutions (BFIs) for the development and execution of Environmental and Social Risk Management (ESRM) guidelines. This in turn helps improve risk management practices by integrating Environmental and Social Risks. The future of sustainable banking industries depends on the ability of banks to identify and manage environment/climate and social risk.
The focus of emerging and developing countries to seek a “green economy” has enhanced the importance of ESRM for regulators as well as the banking industry. Hence, ESRM is not only the concern of the central bank and BFIs but also the concern of the national economy. ESRM is a framework that assists lending organizations to identify, assess, and mitigate the potential financial impacts of environmental and social risk. Though BFIs have been managing several other types of risks in their organization, environmental and social risk management is still at an early stage of development. The successful implementation of ESRM in any country requires holistic approach of regulators and BFIs and well-conceived and coordinated…
