CCH Tagetik ESG and Sustainability Performance Management
FinanceESGMarch 30, 2023

ESG becomes a key factor for financial service providers and insurance companies

Environmental, Social and Governance, or ESG for short, is a topic that concerns companies in all sectors at a wide variety of levels. As part of our current blog series, we are highlighting important aspects of ESG. Dr. Sven Ludwig is a Senior Advisor for Governance, Risk Management & Compliance and ESG Lead at ifb group. The internationally operating consultancy specializes in challenges around financial and risk management, especially focusing on banks and insurance companies. Dr. Ludwig has worked in finance for around 25 years, speaks regularly at major conferences and is the author of more than 30 specialist publications. In the current article, the expert sheds light on the impact ESG guidelines have on the actions of the financial services industry and the particular challenges that arise in this context.

ESG complements traditional factors in lending

ESG plays an important role for banks and insurance companies in two respects. On the one hand, companies must of course ensure that they implement and "live" the guidelines themselves. This means, for example, reducing their own emissions, designing processes in a sustainable manner, committing to equality and fair education and promotion opportunities, and promoting decent working conditions.

On the other hand, however, the so-called financed issues play an even more decisive role, i.e. the issues in which financial service providers are indirectly involved, usually as part of their business activities in the areas of lending and insurance activities. The focus here is on ESG implementation among the customers of financial and insurance service providers.

From a political perspective alone, banks and insurance companies and the payment flows and risk hedges associated with them have a key role to play in implementing the climate and energy transition. The degree of implementation of ESG guidelines is increasingly becoming a factor in lending, for example, and complements classic criteria such as creditworthiness.

With regard to the reporting obligations of financial service providers, the EU taxonomy also comes into play. Here, the so-called Green Asset Ratio (GAR) seems to be developing into a new key performance indicator, which requires very complex data requirements and data aggregations during disclosures. All of this has an impact on areas such as financing and investments, and will continue to grow in importance in financial institutions and insurance companies. At the same time, the need arises here for suitable software solutions and platforms with which the required data and KPIs can be collected, aggregated and disclosed efficiently and completely in one place.

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The level of knowledge in the industry still varies

At present, ESG is still a relatively new topic for the finance and insurance industry that is constantly evolving. This is also reflected in the fact that the level of knowledge still differs in some cases - for example, it can be observed that it is often younger employees who drive the topic forward within their companies. The views also differ depending on the segment.

  • In banks, for example, ESG is often seen as an opportunity to participate in financing the necessary change and to act as an advisor for customers around their transition.
  • For asset managers, the focus is often on advisory services around ESG as well as new products - important aspects here are opportunities to positively influence the ESG rating. However, approaches that go in the direction of pure "greenwashing" without real anchoring in the processes and in the corporate culture must be treated with caution.
  • Within the insurance industry, it is primarily reinsurers that have been proceeding with dynamism on the subject of ESG for years, which is also related to the associated - and for reinsurers very relevant - climate risks.

Overall, it can be seen that ESG is being treated with much greater seriousness. The obligatory disclosure will once again give a strong impetus to this. Exposure measurement, governance and performance management will then be an important factor. There will continue to be many standards driven by NGOs and others such as those driven by the G20 and implemented by IFRS (ISSB) will be added. Excel will not be enough especially when it comes to governance, consistency, audit assurance and process industrialization. The data requirements alone are and will be exceptionally high.

Data requirements and holistic approach

The greatest current ESG challenges for companies in the financial services sector lie in meeting the data requirements and sustainably anchoring the ESG topic throughout the entire company. The requirements, e.g. for data to be collected for the EU taxonomy, should not be underestimated under any circumstances, because in some cases extremely detailed guidelines and criteria have to be met. One example of this is the DNSH ("Do No Significant Harm") assessment criteria for new real estate construction. These are technical assessment criteria that are aligned with the six central environmental goals of the EU taxonomy - i.e., from climate protection and the path to a circular economy to the protection and restoration of ecosystems. Shown by the practical example, even information on the use of water-saving toilet flushes is required - and we are only implementing parts of "E" here, without "S" and "G".

Another often decisive point is not to view ESG as a selective, isolated task, but to consider and implement it throughout the entire company. Whether strategy, corporate culture, HR, IT, finance, risk management - all areas must be included. At the micro level, this extends to the question of how energy-efficient, climate-friendly and ESG-friendly the end devices used by employees are or what means of transport are used to get to work.

Green asset ratio increasingly in the focus for financial service providers

The question often arises as to what impact ESG can have on other companies and ultimately also on consumers - whether, for example, it is to be expected that loans will generally become more expensive as a result of ESG. However, this is not to be expected (with emphasis on the word "generally"). This is because, for example, banks have an interest in financing primarily "taxonomy-compliant" activities in view of their own green asset ratios and thus respond with lower interest rates for such financing. At the same time, "green bonds" allow institutions to refinance at lower cost in return. This may tend to widen the gap between bonds with good ESG ratings and others. It is important here not only to pay attention to the "E" in ESG – that is, in simplified terms, to the environmental and climate aspects - which are currently often still in the foreground. Aspects falling under "S" and "G" will also play an increasingly important role in the future in the context of the EU taxonomy, also for financial and insurance products.


In the finance and insurance industry, ESG and the associated disclosure and reporting implementations are still in their infancy in many cases. Whilst the high and increasing requirements are mostly already known, the development is progressing rapidly, and knowledge and know-how are also continuously increasing. The importance of taxonomy-compliant activities and sustainability reporting will continue to increase massively for banks and insurers and, as a consequence of the necessary access to capital, for non-financial companies. The professionalization of sustainability disclosure and reporting is a strategic issue for departments and IT, which is now moving to the center of industries.

Learn more about how CCH Tagetik can help you with ESG reporting.

Ludwig, Sven
Senior Advisor Governance, Risk Management & Compliance and ESG Lead at ifb group
Dr. Ludwig has worked in finance for around 25 years, speaks regularly at major conferences and is the author of more than 30 specialist publications
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