How financial institutions can add value with environmental, social, and governance

A previous version of this article was published in August 2021 in the Callahan & Associates 2021 Supplier Market Share Guide: Credit Union Auditors.

The COVID-19 pandemic, extreme weather events, and the fight for racial and social justice turned 2020 into a year of corporate awakening, bringing social and environmental responsibilities and sustainability practices to the forefront.

These practices fall under the umbrella of environmental, social, and governance (ESG), which has found itself in the spotlight as consumers evaluate companies on how far they’ve advanced their sustainability efforts.

It’s easy to think that ESG is something for large, publicly traded companies to worry about — not financial institutions. In reality, ESG impacts every organization, regardless of size.

The current focus on corporate social and environmental responsibilities are likely why financial institutions are reframing their approach to recruiting, improvement initiatives, community engagement, and more.

ESG considerations

Many have begun evaluating the following questions and aligning their answers with ESG strategic practices.

• Do we seek and recruit talented people from across a diverse pool of candidates?
• Are we proactively addressing the environmental impact of the organization and taking measurable steps to improve?
• Do we engage all key stakeholders in the community?
• Does our board represent a diverse mix of members that reflect the community we serve?
• Are our management incentive arrangements aligned with our mission and our promises to stakeholders?
• Do we report out to the community on any of the above matters?

What is ESG?

ESG provides an opportunity for financial institutions to better serve their market. To do so, a financial institution must first understand the quantitative and qualitative aspects typically analyzed within each factor: environmental, social, and governance.