June 18, 2022 / VOLUME NO. 214

ESG Backlash

A lot of bank leaders find value in environmental, social and governance (ESG) initiatives, believing it’s important to measure and understand their progress in this area. But some — 18% of CEOs and board members, according to Bank Director’s 2022 Governance Best Practices Survey — truly dislike ESG. 

In fact, there’s no topic that fires up this vocal minority more these days. We’ve started benchmarking the industry’s progress in our recent surveys, due to regulators’, investors’ and other stakeholders’ emerging emphasis on ESG, and we’ve received a lot of comments as we track that trend.

“Far too much emphasis being placed on this matter,” wrote one director in our 2022 Risk Survey. “ESG could distract resources from more important bank concerns such as safety and soundness,” wrote another. “ESG is purely a political item.” A chief financial officer echoed that concern, noting that “increased regulations and disclosure requirements take time, money and resources away from the core business of banking and customer service.” 

I brought this pushback to the attention of three banking leaders focused on ESG during Bank Director’s Bank Audit & Risk Committees Conference earlier this week: Mike Faillo, chief sustainability officer at $211 billion Fifth Third Bancorp in Cincinnati; Maryann Bruce, risk committee chair at $7.7 billion Amalgamated Financial Corp., based in New York; and Mike Ouellet, a board member at $1.4 billion Androscoggin Bank in Lewiston, Maine.

All perceived ESG as a competitive strength for their business. Increasingly, over the last few years, retail and business customers care about a company’s broader impact, meaning that ESG can represent real opportunity. Both Fifth Third and Amalgamated offer solar lending, for example. In addition, prospective employees value many of the elements examined in ESG, including how employees are treated by the organization. In a tough climate for talent, that could provide an edge. 

If 18% view ESG as a waste of time, that’s “18% less competition” for his bank, said Ouellet. His advice to bankers looking to get into the space? Be authentic, but “don’t try to take it all on in one fell swoop. Find a few pieces that work.” Bank Director’s Risk Survey found banks setting goals around employee development (68%) and community initiatives (63%), among other areas. 

Most banks may lack a comprehensive program, but they’re taking bites out of the ESG apple. It’s a good sign, as the panel agreed that ESG seems inevitable as stakeholders seek additional transparency from the banks they’re working for, investing in or with which they’re doing business. Disclosing your institution’s progress on ESG — telling its story in line with its mission and values — helps demonstrate that the bank walks the walk where it matters.

• Emily McCormick, vice president of research for Bank Director

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