ESG rating assessment of the banking sector

Abstract

Recently, ESG ratings have become increasingly relevant. They are one of the indicators that allow you to track how much the company pays attention to environmental, social and managerial factors in its activities and what risks it carries. Since ESG presupposes environmental, social, governance, that is, the environmental environment, social policy and management, these components relate to the activities of each economic entity and should be regarded as fundamental in assessing the effectiveness of their activities and the results of their policies. Many people mistakenly believe that ESG factors and their implementation concern only companies in various sectors of the economy engaged in the use of resources and production. However, in reality, these criteria should be implemented for the purpose of sustainable development by all economic entities, including financial institutions and, first of all, banks. In relation to borrowers, banks can use ESG ratings as an additional analysis of the client’s creditworthiness. Thanks to these ratings, banks contribute to strengthening business protection of the environment. If a company actively pollutes the air or throws out waste, does not comply with social and corporate norms and its ESG rating is low, it will be more difficult for it to get a loan from a bank. Similarly, banks that finance the activities of companies with a low ESG rating run the risk of getting the same low ESG rating themselves, which is fraught with undermining the bank’s image and reputation, followed by an outflow of deposits and an increase in the risk of bankruptcy. The article evaluates the ESG rating by various methods and concludes that it is necessary to standardize indicators and universalize ESG rating indicators.