This blog is the second part of GreenFi’s impact series. Read the first part here, GreenFi Leads the way in ESG Due Diligence
Today’s article will dwell on ESG due diligence, with a special focus on the benefits to loan officers in bank and financial institutions.
A loan officer must follow a series of steps before concluding on the approvals for disbursals. Typically the process starts with a credit management assessment. This is followed by KYC, borrowers’ credit report valuation, crime/fraud history, money laundering allegations, physical inspections, etc.
The process of determining a company’s ESG (environmental, social, and governance) policies and risk factors is known as ESG due diligence. Another crucial element named ESG assessment has been recently added to the list of loan compliances and is now a mandatory regulation.
ESG due diligence aims to address companies’ controversial conduct and legal violations while providing information on responsible ESG programs. In today’s financial segment, ESG compliance is a crucial consideration during the loan approval process. Conversely, in the borrower-lender landscape, ESG-linked loans offer a spread discount or penalty based on the borrower’s meeting of specific ESG targets.
Lenders (Loan officers) find it difficult to verify whether a borrower has adhered to the ESG norms. This is a complex process that involves multiple sources. Often, the process involves time-consuming manual verification, leading to delays in loan disbursal.
Loan officers have historically used a variety of sources to assess ESG (manually). These include:
- Credit history: Evaluating the borrower’s financial stability and creditworthiness.
- Media reports: Monitoring news and publications for potential ESG-related red flags.
- Planned initiatives: Assessing the borrower’s commitment to future ESG compliance.
- Regulatory filings: Publicly available documents detailing the borrower’s compliance.
- Sustainability reports: Submitted by the borrower along with the loan application.
- Verification reports: Submitted by BHUs and site visits.
Amid a tight deadline, the lengthy process coupled with a multi-layered approach can slow down the loan approval process. Technology can be a great enabler. A water-tight technology that provides foolproof solutions, like identifying gaps in ESG and providing the right-fit solutions to recurring problems, can enhance the performance of financial institutions concerning ESG due diligence.
More and more organizations are investing in customized ESG software tools and applications that seamlessly integrate with their middleware and offer solutions on the go. The solutions are often plug-and-play tools that empower loan officers and financial institutions in the following ways:
- Automated analysis: The application integrates into the existing infrastructure, channels data from various sources for analysis and verification, and eliminates data silos inside the systems
- Risk flagging: Automating data analysis facilitates prompt detection of possible ESG risks. It prepares the loan officers for informed decision-making in a shorter time.
- Reduced manual effort: The tool significantly reduces the time officers spend on manual data collection and verification.
- Improved efficiency: Organizations like GreenFi help financial institutions achieve faster loan disbursement by streamlining the approval and disbursal process. It also enhances the overall process efficiency of the bank/financial institutions.
- Centralized data repository: The compiled data from multiple channels becomes a comprehensive data source for future use.
The BFSI segment is undergoing regulatory transformation. New ESG matrices are being announced globally. Customers are actively scoping for the right technology partner who can enable them to integrate the new mandates and help them seamlessly navigate their ESG due diligence journey.
Contact us to learn more and see the demo: hello@greenfi.ai
