A day in office in the absence of a chief risk officer (CRO) can cause long-standing chaos. More so, since the CRO who works closely with senior management like the CEO and CFO, is responsible for managing and overseeing a firm’s risks.
Of late, chief risk officers across industries are playing the role of chief responsible officers also CROs because of the increased focus on Environment Social and Governance (ESG). More so as ESG has become a crucial part of the risk assessment processes and compliances.
The CRO is the co-owner of ESG risk, but some organisations have distinct Climate Risk functions led by a Climate Risk Officer, like the Bank of America’s Climate Risk Officer. The climate risk officer at BOA manages global banking climate risk, executing and operationalising the Global Climate Strategy within the bank’s Global Banking division.
The new-age CRO is implementing an ESG risk management framework, requiring client relationship owners to consider ESG in credit decisions, insurance underwriting, and asset portfolio investment strategies. CROs utilise AI-enabled ESG platforms and tools to track and manage compliances, and digital challenges, enhancing their platformization strategy and assessing and mitigating significant challenges.
For instance, the integration of ESG due diligence in banks’ processes enhances loan origination and de-risk operations, provides transparent risk visibility, and supports sustainable finance growth to identify new sustainable investments/loans.
Successful CROs are partnering with finance and audit committees to establish ESG reporting standards, monitor regulatory updates, establish benchmarks against peers, assess relevant frameworks, and collaborate with ESG initiatives leaders. Balancing ideal-state reporting with existing resources and anticipating future regulatory requirements is crucial for effective ESG reporting. The tools enable the CROs to navigate uncertainty and prioritise risk identification.
Assessing the borrowers carbon footprint, resource usage, and sustainable practices can enable CROs to identify risks like regulatory non-compliance, reputational damage, and supply chain disruptions. For CROs in financial entities, digitisation can help address challenges like data quality, lack, and inconsistency.
Learn about 10 ways to transform sustainability office into profit centre
So how are CROs leveraging the AI-based ESG platforms and tools?
- Financial risk The ESG AI platform enables the CRO to track potential fines or clean-up costs from environmental violations using the aggregated data of the borrower. Assessing Climate Change Vulnerability, such as extreme weather events or rising sea levels, can help evaluate a borrower’s operations and repayment ability. Assessing borrower’s reliance on scarce or expensive resources due to regulations or environmental pressures can also be helpful.
- Credit risk The ESG AI platform aids in tracking labor practices, community impact, and supply chain ethics of the borrowing entity. It also provides insights into potential ethical concerns, such as child labor and forced labor.
- Overall risk management The ESG AI platform aids in monitoring borrower policies and procedures to identify, mitigate, and disclose ESG practices. CROs can use the technology to assess anti-corruption measures, employee welfare, culture, and compliance of the borrower’s organization using public domain data.
- Future risks The ESG AI platform aids in evaluating the impact of emerging ESG regulations on borrowers’ business such as emissions, resource use, and social responsibility, and assessing the risk of fines or penalties.
- Long-term risk The tools enable the financial services segment to investigate borrowers’ past controversies, assess public perception of ESG practices. Thus, the integrated ESG AI platform safeguards the bank’s long-term reputation.
ESG AI platforms are becoming crucial for CROs, as they protect companies from non-performing assets, long-term reputation, and growth risks. These tools enable the CROs to apply best practices in credit disbursal, increase efficiency, transparency, and tracking, and establish industry benchmarking. Little wonder, the ESG AI platform is growing to be a CRO’s best ally!
Contact us to learn more and see the demo: hello@greenfi.ai
