ESG Risk Culture

Definition

ESG Risk Culture is the combined set of Corporate Values, norms, attitudes, competencies and behavior related to risk awareness (perception of ESG Risks) and ESG sensitive risk taking (active business decisions) that determine a firm’s commitment to and style of ESG Risk Management and sustainability more broadly.

Regulatory Requirements

Institutions should develop on an on-going basis their capabilities to identify, assess, mitigate as appropriate and monitor ESG risks. Institutions should ensure, as part of their training policy, that their management body and staff are adequately trained to understand implications of ESG factors and risks with a view to fulfilling their responsibilities effectively.

The procedures on training for managers should take into account that knowledge of ESG factors and risks is relevant for the assessment of the suitability of members of the management body and for Key Function Holders in line with the Joint EBA and ESMA Guidelines on suitability assessments.

The sound and consistent risk culture that accounts for ESG risks implemented within the institution should include clear communication from the management body (‘tone from the top’) and appropriate measures to promote knowledge of ESG factors and risks across the institution, as well as awareness of the institution’s ESG strategic objectives and commitment.