Finextra recently engaged with Adam Webb, Chief Operating Officer for Risk at ICBC Standard Bank, in anticipation of the Sustainable Finance Live conference. Webb shared insights on risk management and climate risk mitigation as a panelist on the topic of integrating sustainability into regulation and risk.
Webb’s Perspectives on ESG Integration
Webb will participate in a panel discussion titled "How can sustainability be built into regulation and risk?" at the upcoming Sustainable Finance Live conference on November 29, 2022. Prior to the event, we gathered his thoughts on key issues surrounding ESG (Environmental, Social, and Governance) considerations.
Impact of ESG on Daily Operations
"We are actively refining our ESG framework, particularly within the context of emerging markets and commodities. It’s essential to adopt a pragmatic approach. ESG considerations are increasingly becoming integral to our daily operations and decision-making processes. Personally, I’m spearheading our response to the Prudential Regulation Authority (PRA) requirements related to climate change, viewing this as an opportunity to broaden our sustainability focus wherever applicable."
Effects of New Regulations like SFDR, TCFD, and CSRD
"It’s still early to fully assess the impact of regulations such as the Sustainable Finance Disclosure Regulation (SFDR), Task Force on Climate-related Financial Disclosures (TCFD), and Corporate Sustainability Reporting Directive (CSRD) on businesses and markets. While TCFD adoption has notably increased, particularly due to regulatory mandates from the PRA, ECB, and others, challenges remain regarding standardization and the availability of consistent sustainable disclosure frameworks. In some regions, such as the U.S., compliance remains voluntary. We are hopeful that the efforts of the International Sustainability Standards Board (ISSB) will lead to a harmonized reporting standard, facilitating meaningful cross-comparisons across different firms and sectors."
Technology’s Role in Sustainability Regulation
"The trajectory of sustainability regulation is poised to become more stringent, even if standardization is achieved. Technological solutions will be essential for organizations to navigate varying regulatory landscapes across jurisdictions. This is especially critical for scenario analysis and disclosure processes, particularly for smaller firms that may lack substantial resources dedicated to sustainability efforts. One notable challenge lies in the diversity of technology solutions available, as well as their effectiveness in covering unlisted companies or businesses operating in regions with limited sustainability regulations."
Data Gaps and ESG Risk Profiles
"A significant challenge currently hindering ESG risk assessments is the lack of sufficient data. This issue has been highlighted in thematic reviews conducted by the PRA regarding firms’ progress on ESG matters. Historical data on transition risks is scant, while data on acute physical risks, such as hurricanes, is more readily available. Chronic risks pose a greater challenge due to limited data. Gathering counterparty-level emissions data can also be problematic, especially for entities outside of large publicly traded corporations in Western markets. As a result, firms must often rely on proxies and assumptions, which are far from ideal. While data availability is expected to improve gradually, it may take years for the majority of firms to publish the required data without relying on external providers."
Integrating Sustainability into Regulation and Risk Management
"Some regulators are making strides in addressing sustainability, but global alignment is lacking, and the focus often does not encompass the breadth of sustainability as a concept. However, the initiatives from key regulatory bodies are prompting firms to consider the implications of sustainability for their operations and clients. I believe an optimal approach to risk management is to integrate sustainability as a supplemental aspect of existing risk frameworks.
Sustainability-related risks—whether environmental, social, or governance—serve as drivers that create economic transmission channels. They can manifest as impacts on fundamental risk categories such as credit, market, and operational risks. For instance, new social policies regarding supply chain management may lead to increased compliance costs or legal expenses, ultimately affecting profitability and weakening a firm’s credit standing. Depending on the specific business model, sustainability can be viewed as either a cross-cutting risk influencing primary risks or as a standalone risk category."
Learn More at the Sustainable Finance Live Conference
To gain further insights from industry experts, register here for Finextra’s fifth Sustainable Finance Live conference and hackathon on November 29.