Abstract
Sustainable finance has become a common lexicon of both supervisors and financial institutions in the last years also due to the COVID-19 crisis. Undoubtedly, the application of ESG (environmental, social, and governance) factors is currently designing a new strategic perspective, a new approach to business usually named “sustainable”. The paper’s research problem is related to the reengineering of the bank’s business model on sustainability. Integrate ESG factors within the decision-making process will not be enough for the European financial sector; it will be strategic that European authorities and regulators also ensure incentives in this direction. In this perspective, the paper has the purpose to answer the following questions: “How sustainable the business model of cooperative credit banks is and how they are ESG oriented?”, “What are the possible ways, in the prudential framework, to foster a higher attention to the ESG paradigm, in the bank’s business model?”. The research methodology used analyses of a) the main features of cooperative bank systems and the sustainability of their business model and the conceptual benchmark framework used by EBA in the 2020 survey; b) the case of Iccrea Sustainability Framework. The contribution of our paper is manifold and likely to raise the interest of policymakers. Our argumentations and conclusions are likely to contribute in terms of recognition of the sustainable business model also in the prudential framework in the current COVID-19 economy.
Highlights
Environmental, social, and governance (ESG) factors are raising the attention of policymakers and regulators worldwide
It is a unique occasion for adequate recognition of this business model within the prudential framework based on a principle of proportionality inspired by operational complexity and not operational sustainability
EBA (2020) assess the understanding of ESG considerations within the banking context and examines the current market practices in this area, in particular, try to understand: 1) the development of a uniform definition of ESG risks; 2) the development of appropriate quantitative and qualitative criteria for the assessment of the impact of ESG risks on the financial stability of institutions; 3) the arrangements, strategies, processes, and mechanisms to manage ESG risks; and 4) methods and tools to assess the impact of ESG risks on lending and financial intermediation activities
Summary
Environmental, social, and governance (ESG) factors are raising the attention of policymakers and regulators worldwide. In the banking, insurance, and pension fund sectors, supervisory authorities are emphasizing sustainability and ESG issues. The outbreak of COVID-19, and its global spread since February 2020, has created significant challenges to society and risks for the economic outlook. It is difficult to give a global valid definition of ESG factors because there are a lot of different definitions and, operational implications on the three pillars of ESG in the different economic sectors. If firms and banks adopt different definitions of ESG factors, the outputs and differences in the outcomes of disclosures can turn out to be very significant. Environmental issues have been referred to as climate change mitigation and adaptation, as well as the environment’s related risks (e.g., natural disasters). Environmental positive outcomes include avoiding or minimizing environmental liabilities, lowering costs and increasing profitability through energy and other efficiencies, and reducing regulatory, litigation, and reputational risk
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