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This week during our Research Assistant peer call we discussed a hot new topic coming down from the banking industry, Environmental Social Governance (ESG) policies and procedures. Some of our peers have already begun drafting policies around this subject but many were just hearing about it for the first time.
Why is this policy important to banks?
In March 2021, the Securities and Exchange Commission’s Division of Examinations announced that its examination priorities included a stronger focus on climate and ESG-related risks.
What is the scope of an ESG policy?
An ESG policy sets your organizations behavioral standards for how you safeguard the environment, address climate change risks, and how you manage relationships with vendors and their ESG policies and procedures.
Your organization probably already has several elements of an ESG policy already established under different names. That being said you may want to consider establishing one policy that encompasses all of these elements in one document.
What should an ESG policy include?
Let’s start with what each word relates to.
Environmental– Activities that lead to preservation of our natural resources, such as:
Social– Considerations of human capital and interdependencies
Governance– Clearly defined procedures for running the organization
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Board of directors and its makeup
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Executive compensations guidelines
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Political contributions and lobbying
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Hiring and onboarding
Although much of this may seem like it does not apply, take a step back and think about the initiatives your company already does that fit into these categories. For example, do you encourage recycling, community services trash clean-up initiatives, do you allow employees to work from home. All of these things show your environmental activities. On the social aspect, do you report on gender, race, and ethnicity? Do you provide mental health services to employees? Governance aspects can include an initiative to ensure your board of directors is diverse and the organizations hiring practices do not conflict with your ESG goals.
There are lots of resources online to help guide you through this once you are ready to implement your ESG policy. Additionally, we are working on a policy template for our Research Assistant members.
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