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Building Internal Resources to Meet ESG Obligations

As meeting ESG requirements becomes more pressing, banking organizations are more and more facing shortages of resources – whether internal knowledge, people, or data. Those shortages make sense, as the combination of expertise needed – risk management and ESG – is a new demand. Many banks are now struggling to find the right people, to leverage resources they already have, and even to find the data that shows a clear path to where they need to be.

Yet, with clear requirements to report, document, and integrate ESG into the business framework, you need to start taking steps – and the sooner the better as you may have already missed a regulatory deadline.

Top-down implementation

ESG programs are often pet projects of risk and compliance officers, run by a single ESG expert, or otherwise cut off from the rest of the business. That’s at odds with the goal of truly implementing ESG into the bank.

Instead, both the WWF and the EU recommend moving ESG programs into the hands of executive boards members. This shift ensures that ESG is brought into the business, into longer term strategy and goals, and that environmental and sustainability factors can filter down through the business – rather than being pushed from a central point in the organization.

Recognizing skills gaps

When it comes to building new capabilities, it’s fair to recognize that you need new knowledge and new ways of thinking. Some of that can be remediated by delivering internal training. On the other hand, it will also almost always mean resourcing to hire new people. Leadership teams and relevant managers can take steps to acknowledge gaps and determine the best way to fill those gaps.

  • Training – Significant training programs already exist to help banks bring internal people up to speed on the framework, EU taxonomy, the regulatory perspective, and fit into overall strategy. Moving key people into this type of training can speed up processes, while ensuring that people with risk management expertise get the chance to build ESG expertise.  Those sessions are available in offline, online, and hybrid formats – giving most plenty of opportunity to simply fit training into schedules as part of work.
  • Internalizing Skills – Working with external experts and consultants is another important way to ensure that knowledge comes into the company and is thoroughly shared. Here, it’s important to ensure that key ESG people work with those consultants, shadow them, and learn from them – so that knowledge is internalized.

Finally, it’s not enough to ensure that skills come into the organization, people need the opportunity to reinforce, build-on, and apply those skills. That means having budgeting, having access to decision-making, and being able to collect and build on the data needed to make those decisions.

Most importantly, once knowledge is in the organization, it’s important to keep spreading it. That may mean mentoring, coaching, hosting Q&A sessions or workshops, etc., but it should be done to ensure that ESG knowledge doesn’t remain static in a single team or in a few people.

Building (cross-functional) teams

The eventual goal for most banks should be to have ESG experts working as part of cross-functional teams, throughout the business. Environmental and governance factors should touch every investment, every client portfolio, every business directional change. At the same time, most banks don’t have the resources or the people to achieve that. Further, establishing ESG experts as standalone inside of other teams could effectively hobble those people if they don’t have the means to communicate with each other.

Why? There’s not enough knowledge or data on ESG to make decisions. Most of the strategies and knowledge being built are being built for the first time. It’s easier to do that in a dense knowledge environment, where an ESG department or team can share knowledge, build off of each other, and invest all resources into building that knowledge.

That’s what many banks are doing today, mostly as a sort of intermediate step between the siloed and single-person teams we’re trying to get away from and the goal of a fully integrated framework. Of course, an ESG department or team also doesn’t have to be a silo.

For example, in software development, cross-functional teams are more-often creating feedback loops between customer needs and development – often by building teams where customer service and quality assurance spend a few days a week in a dev team, sharing insight, knowledge, and helping to build and steer processes and direction. Financial organizations could start to take this as a sort of intermediate step, building cross-functional teams to bridge the need for a dense, knowledge-building environment and the need to filter that knowledge into the organization as a whole.

ESG must be embedded in the business strategy in order to be effective. That means implementing from the top down, ensuring it has priority with leadership, and that there’s a significant focus on building those skills. Here, banks should focus on training people, ensuring sufficient knowledge and understanding of ESG exists, and that teams are engaged with the topic. That also means having a strategy, not just around implementing ESG but also around resourcing for it – which should include outsourcing specialist skills such as due diligence and strategy review, internalizing skills, and creating hiring and training programs to fill gaps.

Eventually, this will help to strengthen the overall company strategy, to ensure compliance, and to motivate internal people. If done right, you’ll also build a reputation as a responsible business, which will attract talent, investors, and the market – meaning that your ESG programs will pay off.

If you’d like to discuss more about resourcing for ESG capabilities, get in touch. The team at ACE is happy to help.

Thanks for reading

Team ACE