Sustainable finance: 7 steps to manage reputational risk

Banks and insurers have a special role to play in the health of our global ecosystem over both the short- and long-term.

Their decisions about what projects and organizations to fund essentially make them gatekeepers for sustainable development. That means assessing, managing and reporting on the risks involved in all those decisions.

But how do they develop their decision-making policies and procedures -- the framework that will guide how they make decisions and satisfy all their stakeholders? According to Olivier Jaeggi, co-founder of Ecofact, a consultancy specializing in risk management analysis for commercial and investment banks, translating the "how" can be summed up in a set of seven best practices.

The firm developed these recommendations for banks and insurers concerned with managing environmental and social risks, but are worth consideration by any business:

1. Build on existing foundations

Specifically, root the risk management framework in the institution's corporate values and overall risk management systems. This requires support from top management, ideally from the CRO, the CEO, the board or another top management committee. It will be difficult to implement the framework without their backing.

2. Know your environment

Understand the regulatory requirements and the relevant international standards. Monitor and engage with relevant stakeholders to understand their issues and interests. Manage and shape their expectations. Reach out to peers and learn from them.

3. Start with a lean system

Improve and expand it over time. A formal management cycle can help. Consider having it certified according to ISO 14001 or a similar management standard.

Image by carlos castilla via Shutterstock.

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