Addressing risks through the possibility of increasing sustainable financing

Addressing risks through the possibility of increasing sustainable financing

ARMOND DRANQOLLI Chief Risk Officer, Banka Ekonomike

Satisfying the Environmental, Social and Governance (ESG) criteria has become a priority for global Finance Organizations and Institutions, without excluding Financial Institutions operating in Kosovo. This is especially so, as the Multilateral Development Banks and donors have set standards on local banks to adapt more sustainable finance practices as investors increasingly use ESG criteria to evaluate Financial Institutions in which they want to invest.

According to the 2021 report published by the World Economic Forum, the top risks for 2021 globally relate to the environment and climate changes 1 . However, in the long run, environmental and climate risks will be further exposed and the challenges to address them will only increase and become more complex and mandatory for all stakeholders. On the other hand, many organizations and Financial Institutions started applying the ESG practices in their internal governance processes that are related to their activities and their environmental and social impact. One of the major challenges remains to identify and analyze material risks and address them through the possibility of increasing sustainable finance by integrating ESG sound policies into day-today operations. Many regulators and donors also require Financial Institutions and organizations to disclose in their annual reports all actions taken regarding sound finance policies and practices.

On the other hand, financial institutions play a key role in this process and are crucial in advancing these topics in terms of funding certain sectors that are more sensitive to the environment and social issues. However, this responsibility should start with the Financial Institution’s own corporate governance, starting with the review of the current mission and vision, then amending existing domestic lending policies by gradually aligning its loan portfolio with ESG objectives. As a result, financial institutions should encourage the funding of certain environmentally sensitive sectors and support companies that promote improved working conditions, gender mainstreaming, and labour market diversity. Thus, all these topics should be addressed and adapted in the daily policy of doing business.

On the other hand, central and local governments have a key role to play in developing the necessary strategy and laws that promote and stimulate a more proactive approach to ESG topics as these initiatives will accelerate the more comprehensive adaptation of all parties to this goal.

Also, the government may, through issuing financial instruments (green bonds), allocate direct funds which can be used to fund projects having direct environmental and social benefits. “Finally, we all need to be aware of the responsibility we have for moving from a traditional financial system to a sustainable financial system, and that is why we all need to work together to achieve this goal.”

1 https://www.weforum.org/docs/WEF_The_Global_Risks_Report_2021.pdf