Guðni Th. Jóhannesson, the President of Iceland, recently completed an official visit to Georgia, where he visited, among other things, the office of Creditinfo in Georgia.
The visit was intended to strengthen the relationship between Iceland and Georgia, among other things through increased cooperation in the field of climate issues and green solutions. The president was accompanied by Guðlaugur Þór Þórðarson, Minister of Environment, Energy and Climate, Nótt Thorberg, director of Grænvang, and a delegation of representatives from the business community, among whom was Hrefna Ösp Sigfinnsdóttir, managing director of Creditinfo in Iceland.
During the visit, Alexander Gomiashvili, Managing Director of Creditinfo in Georgia, welcomed the group and talked about Creditinfo’s activities in Georgia together with Hrefna Ösp, who educated those present about Creditinfo’s activities internationally.
Creditinfo Group has operations in over 30 countries around the world and over 400 employees.
Guðni Th. Jóhannesson, President of Iceland together with Alexander Gomiashvili, Managing Director of Creditinfo in GeorgiaAlexander Gomiashvili, Managing Director of Creditinfo in Georgia addresses the delegation of the President of Iceland.
West Africa Monetary Union Credit Bureau – Creditinfo West Africa
The single credit bureau (Creditinfo West Africa (Creditinfo)) that spans the single monetary union regulated by La Banque Centrale des États de l’Afrique de l’Ouest (BCEAO) has released evidence that the credit decisions of lenders is changing to be take into consideration the previous lending history of borrowers.
Creditinfo has been running the credit bureau for nearly ten years, initially much focus was to gather the correct information from Banks and Microfinance (MFI) lenders across the 8 countries of the union. Then followed the educational process of explaining how to understand and interpret the information so enabling improved risk decisions for granting credit.
The reporting is now showing real benefits; NPL (non-performing loan) rates where the credit bureau was not interrogated and no credit report was taken are seen as as much as four times higher than where a credit report was taken as part of the credit assessment.
This huge difference can be attributed to the fact that when lenders take a credit report from Creditinfo they adjust their decision when they see the information in the report. If a request for a loan comes from a customer who has poor payment performance with another lender, or they have a low credit score then that request for a loan may be declined, or at least the loan amount the institution is willing to lend will be reduced considerably. This information can only be known by the lenders that take a credit report as part of eth decision process.
More and more lenders across the region are systematically taking credit reports for all credit decisions, Creditinfo has seen the number of credit reports increasingly aligned to the number of credit decisions. However, there are still some lenders that have not systematically built in the automated process of system to system credit report requests, so even if it is the policy of the lender to always take a credit report they are dependent on individual underwriters to implement the policy. In this case the lender risks higher losses than their competitors. Automation and digitalisation also brings with it the opportunity to better use credit scoring and decision engines to drive further efficiencies and improve the customer experience.
Creditinfo West Africa is experiencing an increase in financial institutions going through a digital transformation in loan granting, linking to the credit bureau via an API, and then making the assessment with a decision engine, such as the hosted solution provided by Creditinfo.
There is also related benefits to this improvement in NPLs when credit reports are taken. With greater control of losses lenders will increase the number of loans granted, reduce the need for guarantors or collateral and broaden the access to credit. Furthermore, the lower risk environment will attract new lenders, or lenders to increase they range of credit products which increases competition.
With the ongoing aggression initiated by the Russian Federation in Ukraine, the need to implement international sanctions has to be embedded in the daily business activities of our companies.
We know that companies – operating in the fields of activity subject to such a special obligation – must do more due diligence to mitigate the risks associated with implementing sanctions, but the processes should be somewhat similar to all of the companies operating in Estonia.
Such companies, whose daily economic activities do not deal with continuous customer background research or transaction monitoring, can sometimes be in a difficult situation where they do not have enough know-how or manpower resources to assess the risk of whether one of their customers or partners falls under the established restrictions or not.
Finding such a necessary workforce is always possible, but as you know, making such a fixed cost can sometimes be impossible according to the company’s business model. In this case, one of the options is to delegate the control of said risks outside the company or to use convenient and straightforward, but at the same time reliable services to help with this task, which are available on the market.
For these cases, Creditinfo is offering small businesses the opportunity to mitigate their risks in two ways – by delegating the checking of compliance with sanction lists for their customers and partners entirely to us or by using a straightforward and convenient solution on our e-Krediidiinfo portal – WebScreening.
The web-based service WebScreening allows you to request the entry of a person of interest to you through a convenient and comprehensive user interface, both on international sanctions (European Union and the United Nations) and watch lists (so-called local sanctions and “black lists” of various countries, in some instances, for example, wanted persons) as well as persons with a national background ( PEP) from the lists.
With additional functions, it is possible to perform user management in the portal (if the company has more than one user) or view the archive of requests made. At this point, it is good to note that the archive of performed requests is convenient to use, for example, to check the performance of the employee’s duties and prove the requests made to the supervisory authority, if necessary.
In May 2023, Creditinfo Eesti announced a prize fund to recognize students who have addressed research questions in the fields of money laundering and sanctions in their research. In cooperation with the COBALT law firm and the representatives of the State Money Laundering Bureau, the evaluation committee chose Victoria Helenurme, a master’s student from the University of Tartu, as the winner for her master’s thesis on the topic “Prediction of deletion from the business register due to non-submission of the annual financial report using the example of Estonian companies”.
Victoria Helenurm is from Tallinn and graduated cum laude from the University of Tartu, majoring in Marketing & Financial Management. Today, she works as a financial controller in a company offering energy-saving indoor climate and renewable energy solutions and sees her future in business.
We had an interview with her on the journey of her thesis topic:
The topic of your thesis was “Prediction of deletion from the business register due to non-submission of the annual financial report using the example of Estonian companies” – how did you arrive at this topic?
At the beginning of the summer of 2022, discussions began with people who eventually became my thesis supervisors. My main desire was to write a paper on a current topic in society. This year, the Estonian state penalties for not submitting the annual report became harsher, and in cooperation with my supervisors, we saw that there is a public interest in this area of research and also sufficient data for research.
Why was this topic worth researching?
If, as a person, we take a loan, for example, we are understanding the obligations that come with taking a loan. For me, founding a company or being on its board is a somewhat similar responsibility – as a manager, we have assumed the responsibility, among other things, to report on the progress of our company’s business to the public.
Unfortunately, while we are mostly exemplary in servicing loans, tens of thousands of Estonian companies fail to submit their annual reports on time.
I cannot say whether this difference is due to, among other things, the fact that the penalties for not submitting the annual report have been relatively lenient. But it is certainly worthwhile for us to become more aware that such behavior is problematic.
After all the state of our countries businesses is based largely according to the data of the Business Register. If we have thousands of active companies that do not fulfill their reporting obligations, the financial forecasts, risk analyses, business decisions, etc. of the state, lenders and other parties will suffer in its quality.
The submission deadline (6 months after the end of the financial year) is a very lenient deadline. The business landscape is more and more unpredictable, so the knowledge of the previous year’s business results that arrives half a year later is already outdated. As is typical of our e-government, we would expect that at least certain types of companies could be assigned a much earlier submission obligation to help update our economic data.
What facts became clearer as part of the research?
In my research, I tried to find an answer to the question of whether the deregistration of a company can be predicted purely by looking at how the company’s management has cared about the obligation to submit an annual report in its previous business life.
The Estonian financial world is very much a believer in financial ratios when assessing the business health of a company. I tried to see if it is possible to convincingly assess the business risk of deleting the company by completely setting aside the financial statement.
The studied dataset also proved this – a significantly more accurate forecasting method than financial ratios (prediction accuracy approx. 63%) was the observation of the past behavior of board members (prediction accuracy almost 82%). It can be said that if there is a member of the board of the company who has either delayed or failed to submit the financial year report in previous companies, it is a very clear business risk, which indicates the risk of deletion of the company in question.
How could this research topic be continued?
Although I myself rather do not plan to continue my studies in a doctoral program, I definitely see possibilities for expanding this research topic. The obtained research results could certainly be compared with our neighboring countries – to assess whether in Latvia, Lithuania, Finland, etc. there are similar relationships between corporate delisting and board members’ past due diligence.
Another immediate opportunity for investigation is provided by the amendments to the law that entered into force this year, which toughened the penalties for failure to submit an annual report, among other things. Repeating this research in 5+ years would give an idea of whether business behavior has improved in terms of reporting obligations.
We were very pleased with Victoria’s research, as her research clearly connected with the general theme of our competition – the data of the Business Register and national registers in general are the main factors when applying the KYC principle. Financial data from the company that is not submitted on time or is completely missing, is a clear danger signal when investigating the background of your business partner.
When it comes to risk management – both when creating a customer relationship and during the existence of a customer relationship, up-to-date data from the business register is very necessary. Does the company actually operate; whether the data there (especially the field of activity and financial data) are correct (especially when it comes to the application of enhanced due diligence measures). The given data helps to understand the customer’s activity profile.
If the client does not submit annual reports, it is clear that it may be a riskier client, and this should be taken into account when establishing or monitoring a business relationship in order to mitigate the risk.
Urmas Pai – KYC&Fraud Global Product Manager, Head of the evaluation committee
In the spring of 2021, the Estonian Financial Supervision Authority authorized Creditinfo Estonia to offer Account Information Service in the Estonian market. In the autumn of 2021, the Estonian Financial Supervision Authority also granted the authorization to provide Account Information Service to the Latvian and Lithuanian markets. This act added to our product portfolio a new, exciting product that benefits our customers in the short and long run. As of today, we have had the Account Information Service in our cross-Baltic product portfolio for two years.
About the Account Information Service
The opportunity to provide Account Information Service emerged when the European Union (EU) Parliament and the EU Council adopted a new directive regulating payment services in the EU internal market on November 25, 2015 (PSD2), which emphasized the expansion of open banking in Europe.
Open Banking refers to provide third-party financial service providers open access to transactional data of bank and financial institution customers, using secure data transmission channels and customer consent.
The Account Information Service is a part of the Open Banking initiative, defined as an online service where the service user (customer) is identified and authenticated via strong identification and authentification means. The service itself means transmitting customer’s bank account data through a secure channel to third party from whom the customer wishes to apply a credit product.
How does Creditinfo provide the Account Information Service?
Using Creditinfo Estonia’s solution, both individuals, which is regulated by the aforementioned payment service directive, and companies can transmit their account information to third parties.
Beside financial sector the possibilities of the Account Information Service can be successfully used in application processes in various sectors. Previously mentioned customer consent is obviously obligatory.
Different sectors that can benefit from account information:
Public sector companies that provide subsidies to individuals and businesses, where the information in the account details creates significant value when determining subsidies;
Insurance sector companies, which can use behavioral information from the bank account for determining insurance premiums or simplifying the insurance incident evidence burden;
Other sectors where value from account information help to create better personalized offers for their products and services.
The strength of our Account Information Service is categorization.
The greatest value of the Account Information Service provided by Creditinfo Estonia comes from categorizing account transactions, which our clients (data recipients) can conveniently use in their business decisions.
Categorization is a solution that can and should be continuously improved over time. Precise and detailed categorization is a top priority for Creditinfo Estonia’s Account Information Service.
The data from the Account Information Service serves also as an input for our Account Information Service Report. The report helps to make more informed business decisions both internally and towards our client’s customers. The report highlights all the key ratios, indicators, “green and red flags” and much more that can be extracted from account information.
The report is designed in a way that can be customized to meet the client’s needs, which make it a tool for everyday business decisions.
Creditinfo Group participated in this year’s XVIII Credit Scoring and Credit Control Conference which took place in Edinburgh on 30th August – 1st September 2023. This year’s conference focused on current industry issues and the latest credit risk analytics research findings.
Dmitry Borodin, Head of Decision Analytics Creditinfo Group, and Guilhem Poucin, Senior Risk Analyst Creditinfo Group, presented on “A Winding Road to Credit – Access to Finance for Underbanked Populations”. During their session, they demonstrated how their research examined the issue of access to finance for underbanked populations and identified actionable high impact score-driven solutions:
1️) Using Creditinfo’s global credit bureau footprint, they have explored financial inclusion of the identified populations across various territories, identifying common challenges.
2️) They then introduced a framework to address the most common challenges that limit access to credit for underbanked populations. The framework is to a large extent driven by careful utilization of alternative predictive characteristics such as payment histories on mobile or small loans, telecom and utility data, data on associated parties, and self-reported information. Furthermore, they advocated for the application of thoughtful and unbiased model development methodologies ultimately helping to enhance financial inclusion and expand access to finance for underbanked populations.
Johann Haraldsson, Data Scientist, Creditinfo Group, together with Gunnar Gunnarsson – Executive Director and Analytics and Consultant – Creditinfo Group, presented on “Chunking – A Practical Approach to Manage Consent-based Data Sources in Credit Scoring”. In this session, they presented “chunking” – a methodology used for training a credit score which is designed to handle the fact that different data sources apply to different people at different times. This applies especially to data sources where individuals must opt-in and can opt-out whenever they want. This is to ensure to simplicity, fairness and consistency through time is maintained, while losing as little statistical power as possible.
Kjartan Palsson, Data Scientist, Creditinfo Group, spoke on “Networks- A Practical Graph-Based Approach to Corporate Default Modelling”. During his session, he focused on the network of company connections, specifically how information can be incorporated from neighboring companies to enhance the company credit score. He highlighted on the following:
1) How companies can be connected through various channels, such as ownership structures, common senior staff roles or supply chain relationships. He presented a practical approach to categorizing these channels into “edge strength”, where high strength indicates that defaults are likely to spread to neighboring companies.
2) Ways to use this information to create features which are highly predictive of defaults, particularly for newly founded companies with limited financial data.
Reform of BICs, impact of inflation on solvency, feedback from the Checkinfo service – an overview with Sidimohamed Abouchikhi, Regional Director for Francophone Africa of Creditinfo Group, and Director of the Board of Directors of Checkinfo.
Finance News Hebdo: In this inflationary context, what assessment do you make of individuals’ and businesses’ insolvency risks?
Sidimohamed Abouchikhi: Inflation first impacted the distribution of loans after the successive increases in the critical rate (+150 bps), partially passed on to the interest rates applied by credit institutions (+53 bps). If we compare the first six months of the year 2023, we see a virtual stagnation in requests for the granting of credit, whereas usually, we have an increase between 5 and 8% (minimum), or even more than the part of individuals. For businesses, the decline in demand is mitigated when government support programs are included. To come back to your question, inflation naturally induces a reduction in purchasing power and impacts payment habits. We see this with the increase in non-payments which is undoubtedly significant but less than that observed internationally. The evolution of unpaid debts in number is more marked among individuals, whereas in terms of outstanding, the majority is among companies. All in all, we are on a return to normative levels of due payments. Not at the same level as 2019, but improving in 2020 and 2021.
FNH: After a long wait, the government has finally adopted the bill dedicated to Credit Information Bureaux. What are the main contributions of this reform?
Sidimohamed: The long-awaited reform of the Credit Information Bureaux (BIC) will allow better control of systemic risks and better accessibility to financing. It will also make it possible to take a big step towards financial inclusion and ensure that the BICs collect other sources of information besides traditional data. This so-called alternative data from major billers, such as telecom operators, water and electricity suppliers, insurance companies and others, will compensate for the lack of historical information on unbanked customers. The availability of this information will allow financing institutions to open up, with less apprehension, to new customers (individuals and VSMEs) who do not have a banking history but justify good payment habits. And this while reducing the use of guarantees. I remind you that of the 53% of the population with a bank account, less than 30% have access to credit. Therefore, this reform aims to widen access to financing for this population outside the circuit.
FNH: What are Creditinfo Group’s priorities in Morocco and West Africa in the short to medium term?
Sidimohamed: With more than 30 active credit bureaus, Creditinfo now has the most robust global presence in this sector. For over 25 years, we’ve provided credit bureau and risk management solutions and trusted business information to some of the world’s largest lenders, governments and central banks. The objective is to increase financial inclusion and generate economic growth by allowing access to credit for SMEs and individuals. Creditinfo is the industry leader in Africa, with a presence in 18 countries. The company which continues to be strengthened with two new acquisitions dating back barely a month, in Uganda and Namibia.
FNH: Checkinfo, Bank Al-Maghrib’s delegate for managing the irregular check centralization service, started its activities in April 2021. What is your experience feedback to date?
Sidimohamed: After two years of activity, and according to the feedback from our users, we can say that Checkinfo has a significant positive impact on their cash flow and the hassles associated with collection. Indeed, it should be known that 84% of the checks checked and posted irregularly come from accounts in prohibited banking. Therefore, these people are already in banking irregularity because of bad checks or other, and continue to issue checks which, of course, will be returned unpaid. Today, Checkinfo allows its users to protect themselves against these frauds. Moreover, the efficiency rate of the service is 99.6%. Also, you should know that out of all the checks that are checked, 13% are irregular.
In today’s globalized world, cross-border data sharing is becoming increasingly important for credit bureaus. By accessing data from multiple countries, credit bureaus can improve the accuracy and completeness of credit reports, assess the creditworthiness of non-citizens, and expand market opportunities for lenders. Let’s explore these benefits in more detail.
Improved accuracy and completeness of credit reports
Accessing data from multiple countries allows credit bureaus to gain a more comprehensive view of an individual’s credit history. For example, if someone has lived or worked in multiple countries, their credit history may be spread across different credit bureaus. Cross-border data sharing allows credit bureaus to combine this information into a single credit report, providing lenders with a more complete picture of the borrower’s creditworthiness. This can lead to more informed lending decisions and better risk management for lenders.
Assessment of creditworthiness for non-citizens
For non-citizens or individuals with limited credit histories, cross-border data sharing can be especially important. Without access to credit data from other countries, it can be difficult to assess their creditworthiness. Cross-border data sharing allows credit bureaus to access credit data from other countries, providing a more complete picture of the borrower’s credit history. This can help lenders make more informed lending decisions, expanding opportunities for creditworthy borrowers.
Increased market opportunities for lenders
By accessing data from multiple countries, credit bureaus can also help lenders expand into new markets. For example, a lender in one country may be interested in providing loans to individuals or businesses in another country. Without access to credit data from that country, it can be difficult to assess the creditworthiness of potential borrowers. Cross-border data sharing can provide lenders with the information they need to make informed lending decisions, opening up new opportunities and expanding their market reach.
Compliance with international regulations
In some cases, cross-border data sharing may be required by international regulations or agreements, such as the GDPR in the European Union. By complying with these regulations, credit bureaus can avoid legal and reputational risks. Additionally, complying with international regulations can help build trust with consumers and businesses, as it shows a commitment to ethical and responsible data practices.
In conclusion, cross-border data sharing is becoming increasingly important for credit bureaus. By providing access to a wider range of data sources, credit bureaus can improve the accuracy and completeness of credit reports, assess the creditworthiness of non-citizens, expand market opportunities for lenders, and comply with international regulations. As global data sharing becomes more common, it is likely that cross-border data sharing will become a standard practice for credit bureaus around the world.
Letshego Kenya launches “Letsgo Cash” in partnership with Creditinfo Kenya to take financial inclusion to a higher level.
· Minimum loan amount of KES 1,000 and a maximum of KES 100,000 and a loan repayment period of 30 days.
· LetsGo Cash increases access and supports customers who need quick and easy access to funds for emergency purposes.
· LetsGo Cash supports digital financial inclusion and enables the underserved and informal sector players to build their own credit records.
Nairobi, Kenya, 3rd May 2023 – Letshego Kenya Limited, a subsidiary of Letshego Holdings Limited (Letshego Group), has partnered with Creditinfo Kenya to launch LetsGo Cash, a self-service and short-term instant loan that gives customers access to KES 1,000 up to KES 100,000.
LetsGo Cash is payable in 30 days and geared towards consumers who need quick and easy access to funds for emergency purposes, including family emergencies, medical needs, home repairs, car breakdowns or funds to support entrepreneurs and small businesses. Creditinfo Kenya’s team brings decades of experience and practical knowledge in credit risk management to support the delivery of LetsGo Cash.
Letshego Kenya’s Chief Executive Officer, Adam Kasaine said: “LetsGo Cash is another way we are increasing access to product funds for more Kenyans. This is inclusive finance in action – it’s quick and hassle-free cash at a competitive price, accessible via your phone or web.”
The innovative LetsGo Cash is a potential game-changer, as it is accessible anytime, anywhere and is more competitive than traditional short-term cash advance providers, providing customers with immediate financial relief and the opportunity to participate in the digital economy in a sustainable and responsible manner.
Creditinfo’s Regional Manager for East Africa, Kamau Kunyiha added: “Creditinfo is proud to support LetsGo Cash assist customers who need quick and easy access to emergency funds the most, while also helping the underserved to build their own credit scores at the same time. Customers’ applications are submitted with a few swipes on a mobile phone, and the time to cash can be as short as a few minutes.”
LetsGo Cash provides a convenient, safe and affordable financial service to the underserved and informal sector players thereby helping to increase financial inclusion. It also helps them build their own credit record, since the better they manage their loan, the better their credit record, and the more cash they have access to going forward. This ensures that more people can access the service, including first-time borrowers who can now enjoy the benefits of a secure, regulated lending solution. Once approved, the money is disbursed directly into the customer’s mobile wallet. It can then be used as the customer desires, including for emergencies, such as purchasing prepaid electricity and water, paying bills, or sending money to friends and family.
LetsGo Cash can be accessed on Letshego’s LetsGo Digital Mall and downloadable via Android and Apple Play Store, or with one click, clicking on www.letsgo.letshego.com as well as via the USSD *435# on their mobile phone.
-ENDS-
NOTES TO EDITORS:
About Letshego Kenya Limited
Letshego Kenya Limited is the largest credit-only microfinance institution in Kenya and a licensed financial services provider in Kenya, providing loans to individuals across both the public and private sectors, as well as supporting Micro and Small Entrepreneurs (MSE). Since the conclusion of the successful acquisition by Letshego Holdings Ltd in February 2012, Micro Africa Group became a wholly owned subsidiary of Botswana-based Letshego Holdings Limited – an inclusive finance group with more than 21 years’ experience in Africa, and a current footprint of 11 Sub-Saharan Markets. Its contribution to the group has been to leverage the microfinance banking competencies and existing customer base, expand Letshego’s geographic coverage, and diversify its solution offering.
The company is founded on, and continues to strive towards, the principle of finding the most effective way to implement microfinance banking in an African context and transform the livelihoods of customers who carry out viable economic activity. Letshego Kenya Limited has a staff compliment of over 150 employees, spread across 25 branches. The company provides loans to over 20,000 customers who enjoy an expanded access through strategic partnerships, innovative technology and digital delivery channels. For more information on Letshego, please visit www.letshego.com/kenya
About Creditinfo
Established in 1997 and headquartered in London, UK, Creditinfo is a provider of credit information and risk management solutions worldwide. As one of the fastest-growing companies in its field, Creditinfo facilitates access to finance, through intelligent information, software and decision analytics solutions.
With more than 30 credit bureaus running today, Creditinfo has the most considerable global presence in the field of credit risk management. For decades it has provided business information, risk management and credit bureau solutions to some of the largest, lenders, governments and central banks globally to increase financial inclusion and generate economic growth by allowing credit access for SMEs and individuals.
As the world grapples with environmental and social challenges such as climate change, social inequality, and governance failures, the importance of ESG (Environmental, Social, and Governance) considerations has never been more apparent. For banks, ESG is becoming an increasingly important aspect of doing business, as it can help to manage risks, enhance reputation, meet regulatory requirements, drive innovation and increase access to capital. In this blog post, we’ll explore each of these points in more detail.
Risk management: ESG risks are significant and multifaceted, ranging from physical risks such as climate change-related natural disasters to transition risks stemming from legal and policy risks from greenhouse gas emissions and governance or social issues such as human rights abuses. By integrating ESG considerations into their risk management frameworks, banks can better anticipate and manage these risks, which can have a positive impact on their financial performance. For example, banks that fail to properly assess and manage climate-related risks could face stranded assets or lawsuits, which could impact their bottom line. Regulatory frameworks in Europe have taken note of this and the European Banking Authority now requires banks to disclose multiple data-points regarding ESG risks in their risk reports (Pillar III).
Reputation: ESG is increasingly important to customers, investors, and other stakeholders who want to see banks acting as responsible corporate citizens. Banks that take ESG seriously and demonstrate their commitment to sustainability and social responsibility are more likely to attract and retain customers, as well as to access funding from ESG-focused investors. For example, a bank that invests in renewable energy projects or supports social programs in its local community is likely to be viewed more favorably than a bank that does not prioritize ESG. Mismanaging ESG factors to increase reputation may have negative effects, which became evident in some high-profile cases in 2022, both in the EU and US.
Regulatory pressure: Regulators around the world are increasingly focusing on ESG issues and requiring banks to integrate these considerations into their business practices. For example, the European Union has introduced regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and the Taxonomy Regulation, which require banks to disclose ESG-related information and align their investments with environmental objectives. Banks that fail to comply with these regulations could face fines or other penalties, which could impact their financial performance, reputation, and limit access to capital.
Innovation: Banks that prioritize ESG are more likely to drive innovation and develop new products and services that address environmental and social challenges. By supporting the transition to a low-carbon economy and promoting social inclusion, banks can help to create a more sustainable and equitable future. For example, a bank that issues green bonds or sustainable investment products can help to finance renewable energy projects or other environmentally beneficial initiatives, potentially at better rates. Similarly, a bank that offers financial services to underserved communities can help to promote financial inclusion and social equality.
Green bond issuance offers several benefits for banks, such as accessing a growing pool of socially responsible investors, improving their reputation as sustainable financial institutions, and supporting the transition to a low-carbon economy. The growth of the green bond market has been impressive, with a record-high issuance of $269.5 billion in 2021, up 4.6% from 2020. The cumulative issuance from 2007 to 2021 surpassed $1.5 trillion, with the US, China, and France being the largest issuers. The increase in green bond issuance is driven by investor demand and regulatory measures promoting sustainable finance.
In conclusion, ESG considerations are becoming increasingly important to the banking industry to manage risk, enhance reputation, meet regulatory requirements, and drive innovation. Banks that prioritize ESG are likely to be better positioned for long-term success, as they can help to create a more sustainable and equitable future for all stakeholders. As individuals, we can also play a role in promoting ESG considerations by supporting banks and financial institutions that prioritize sustainability and social responsibility. By working together, we can help to build a more resilient and sustainable global economy.
This may be one of the most important feature of ESG in banking, where the green bond space has grown exponentially over the last years.
