E SG
PR ES E NTS N E W
CHALLENGES
but in many ways, it’s just
OLD SCHOOL BANKING by Roby Brock
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SG – environmental, social, and governance issues – is a new buzz acronym in the banking world.
The roots of ESG in its current context can be traced to a number of efforts over the past decade to address climate change, social justice and diversity at the corporate level. Forbes reported in April 2021 that the Prince of Wales and 40 banks worldwide joined in a working group called the Sustainable Markets Initiative’s Financial Services Task Force. Their goal was to understand how the banking industry impacts global sustainability efforts with a goal of net-zero emissions by 2030. This agreement not only targeted the industry's own carbon emissions, but also allocated lending and investment funds to organizations involved in the reduction of carbon emissions. So internationally, the ESG movement has many financial institutions reassessing everything from investment strategies to purchasing power. In Arkansas and at the local level, it may not be that complex. A community bank can only do so much and is unlikely to be part of a multi-national consortium dedicated to these worthy causes. However, a community bank can respond to its customers’ needs and concerns, and in the process, enhance its reputation as a leader in causes important to different generations. “Should a bank in Arkansas care about ESG? I think the short answer to that is that banks in Arkansas and everywhere else already
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care about ESG. They just may not call it by that name,” said Joe Pigg, SVP and Senior Counsel for the American Bankers Association. “Most community banks certainly care about what's going on in their community and what their customers’ needs and expectations are, and that's a big part of what ESG is. ESG is a relatively new term, but it's not really... For most community banks, it's at the core of what they've done for as long as they've been banks,” Pigg added. He explained that governance has been at the forefront of bank management efforts in recent years as boards have attempted to diversify their leadership at all levels. It’s not just race and gender, but it can also be military or veteran status or addressing language barriers. Addressing environmental concerns is unlikely to include a bank adopting a charter to join the Paris Climate Accord. However, a bank can do a lot to reduce carbon footprints through paperless processes, energy efficient lighting, or changes to landscaping techniques that reduce water usage or pesticide necessity. ESG recognition and efforts involve a top-down commitment to the environment, community, and stakeholders. According to a recent KPMG report, ESG efforts are increasingly seen by investors as key to the long-term value of a company. “What’s good for people is good for business—and that’s why financial leaders see opportunity in ESG,” the report noted.
