Financial institutions plan annual ESG spending of up to $500,000: Study

More than half of global financial institutions find keeping up with changing regulations as a challenge in meeting ESG goals

More than 70 per cent of global financial institutions plan to spend up to $500,000 or more annually on ESG (environmental, social, and governance) technology, according to a survey on Friday.

More than half of global financial institutions regard keeping up with changing regulations as the biggest challenge in ESG said the survey, conducted by BCT Digital, a global company for fintech, regtech, and sustaintech solutions, in collaboration with Chartis Research.

The survey found that most firms review their ESG strategies quarterly, spending an average of $250,000 to $500,000 annually. North American and European institutions are more likely to exceed $500,000. Next year’s investments are expected to focus on ESG data and scoring products, governance, risk management and compliance (GRC) solutions, and regulatory compliance and reporting tools.

The survey collected insights from 77 ESG and climate risk practitioners representing financial institutions with assets under management ranging from $1 billion to $500 billion. These institutions are based in the Asia Pacific, North America, Europe, and the MENA (Middle East and North Africa) region. It found that 52 per cent of respondents indicated regulatory compliance as another challenge in ESG. About 48 per cent identified risk assessment and mapping relevant ESG factors, whereas another 48 per cent viewed integrating ESG into operational and financial workflows as significant challenges.

In climate risk, the main challenges are meeting regulatory stress testing expectations (67 per cent), accurate greenhouse gas (GHG) accounting (56 per cent), and integrating climate risk operationally into product lines (50 per cent). Most firms spend between $250,000 and $500,000 on climate risk solutions, with future investments likely to be directed towards emissions data, transitional climate risk modelling, and regulatory reporting tools.

“As highlighted by the findings, there is a lack of uniformity in ESG and climate risk reporting standards; different countries and regions may have their own frameworks and definitions. This disparity makes it challenging for multinational corporations to maintain consistent reporting. The detailed findings of this survey provide valuable insights for financial institutions aiming to enhance their ESG and climate risk management frameworks,” said Jaya Vaidhyanathan, chief executive officer of BCT Digital.

“BCT Digital is ready to tackle the growing needs of the ESG and climate risk markets, and based on this comprehensive survey, we are now even more confident about addressing the intersection of these two fields,” said Vaidhyanathan.

“Compliance with ESG guidelines can be a challenge for many financial institutions, and data and data management are central to the compliance process. Having a fully integrated framework which enables data management across the entire value chain is crucial,” said Sid Dash, chief researcher at Chartis.

The survey covered retail, corporate and commercial banking, asset management, private wealth management, broker-dealers, cooperative banks, microfinance institutions, credit unions, and non-bank financial institutions.