Environmental, Social and Governance: the trends for 2022

By Paul Lambis

With environmental issues topping the list on every organisation’s agenda, Environmental, Social and Governance (ESG) are becoming more relevant for financial institutions. Compared to many of Cyprus’ other sectors, the island’s banks, including financial services firms have made considerable progress integrating ESG information and practices into their operations.

Bank of Cyprus has already covered considerable distance in its ESG journey. Cyprus’ largest credit institution has an ‘A’ rating from MSCI, which is the global benchmark on ESG. The organisation has also started, a few years ago, shifting towards a more mature model in its social network. The bank is now focused on generating social capital through long-term partnerships and structured cooperation with other organisations, including businesses, customers, non-governmental organisations, and the state.

Hellenic Bank is also committed to sustainable business and development by combining financial performance with environmental and social responsibility and implementing sound governance practices. The island’s second largest financial institution has taken relevant ESG principles into consideration when evaluating business risks and opportunities in connection to investment and financing, as they believe this will add value to their customers.

The bank aims to be at the forefront of social change and green transition, drafting a long-term sustainability strategy, embedding ESG factors in its risk framework and improving transparency, contributing to a more equitable and sustainable society.

With ESG funds receiving billions of investments, the trend is set to continue in 2022, creating new career paths for business leaders with a passion for sustainability.  Data analytics practices will play a key role in 2022, as they will allow businesses to get results from their ESG projects. A recent study found that over 70% of the world’s population are more aware of climate issues now more than ever, with almost half planning to adopt more sustainable practices. Customers, investors, and jobseekers consider an organisations’ sustainability efforts before interacting with them.

Renewables are expected to be the main source of energy in the future. The global transition to clean energy will encourage businesses to become more efficient with energy use, impacting organisations in the new year.

As Environmental, Social and Governance makes headway in Cyprus, ESG strategies are also becoming more common among Cypriot pension funds. Pension funds are among the biggest players in the world, and the inclusion of ESG into their process of making investment choices will be positive, having a big impact in the future.

ESG is now a fundamental part of doing business, with an eye to long-term gains. The most notable and interesting trend relates to the evolution of ESG from the periphery of a company’s strategic agenda, right to the core of its major strategic choices. The moment a company realises that ESG is more of an opportunity than a risk, will be the landmark in its ESG journey.

A report from the European Banking Authority (EBA) earlier this year, set out recommendations for banks and their supervisors for approaching ESG risks and help the EU meet its goals of cutting carbon emissions by 2050. “Banks should plan strategically over a period of at least 10 years to show their resilience to different scenarios, disclose strategic ESG objectives, and assess the need to develop sustainable products,” the report said.

The current COVID-19 pandemic has reinforced the need to redirect money towards sustainable projects to make our economies, businesses and societies – in particular health systems, more resilient against climate and environmental shocks.

According to United Nations Secretary General, António Guterres, “Sustainable Development Goals are more important now than ever.” At a time when the well-being of people, economies, societies, and our planet is paramount, adopting more sustainable behaviours will certainly help safeguard the future.