ESG Risk Management in Banking : Strategy, Regulation, and Market Reaction

This book provides a comprehensive overview of the definitions, trends, and regulatory approaches to ESG risk in the banking sector. It examines how banks develop strategies for managing ESG risks, and how stock, bond, and credit markets respond to such risks, including the implications of regulatory changes.

Sustainable development has become a defining challenge of the 21st century, driven by climate change, environmental degradation, and the global initiatives of the Sustainable Development Goals (SDGs) and the Paris Agreement. These issues have gained urgency not only because of rising global awareness of environmental, social, and financial concerns, but also due to the growing significance of environmental, social, and governance (ESG) risks—particularly for banks and markets. This book provides a comprehensive overview of the definitions, trends, and regulatory approaches to ESG risk in the banking sector. It examines how banks develop strategies for managing ESG risks, and how stock, bond, and credit markets respond to such risks, including the implications of regulatory changes. Company size, geographical location, and industry characteristics are analysed as key factors shaping these dynamics. By combining a review of current regulations and initiatives with practical perspectives on ESG risk management, the book offers both theoretical and applied insights. It provides readers with tools to calculate and assess ESG risk, understand the factors influencing investment decisions, and evaluate measures associated with ESG risk in relation to capital requirements in banks. It also explains how to assess green investments, interpret nonfinancial statements, and follow the evolving legal frameworks governing ESG ratings and disclosures. This book is designed for academics, researchers, and students in finance, economics, sustainable and green investing, risk management, banking, nonfinancial reporting, and financial law. The practical implications also make it highly valuable for regulators, supervisors, and practitioners engaged in sustainability-oriented policymaking or in the day-to-day management of ESG risks, particularly within financial institutions.