ESG Factors and ESG Risk in Bank Lending

Abstract

Credit risk assessment, management and reporting are central to the bank lending process. This publication argues that new requirements related to the reporting of specific indicators related to sustainability will be a driver of change in bank lending. The role of ESG factors will become more and more significant, which requires banks to implement in the evaluation criteria of their lending process an ESG assessment of the financed businesses in the context of the EU taxonomy for sustainable activity. The results of the research show that there are significant differences between the studied Bulgarian banks in terms of their reported asset ratios that are or are not within the scope of the taxonomy. This leads to the conclusion that assessing the specific ESG risks of financed businesses will be a serious challenge for banks.