Financial Institutions (FIs) globally are confronted with a multitude of challenges in the context of climate change and the ensuing green transformation of the economy. These changes can have far-reaching consequences for their businesses. While an increasing number of clients are requesting sustainable products, climate change-related credit defaults have the potential for substantial losses and destabilization. To prevent this, regulators are introducing extensive regulatory programs.

To support both the management of risk and chances associated with these ESG-related developments (Environmental, Social and Governance) within FIs, German Sparkassenstiftung for International Cooperation (DSIK) is offering the Sustainable Finance Compass in cooperation with Kempten University of Applied Sciences.

It is a systematic questionnaire to assess the status quo of sustainable finance implementation in financial institutions. The Compass supports the institutions in setting appropriate goals and pursuing them in a coherent manner. The systematic concept ensures that all core areas of the FI are considered: Strategy and Management (i), Business Operations (ii), Core Business (iii), and Communications (iv).

How does the process work?

• Onboarding with a workshop for a systematic introduction, covering the topical context, the tool methodology and its targets.
• Systematic assessment using a comprehensive questionnaire including ca. 100 questions for FIs to be answered for analysis of each of the four fields of action (Strategy, Business Operations, Core Business, and Communications).
• Analysis of the questionnaire in comparison to a predefined, comprehensive action-catalogue resulting in a scoring value for the status quo for the implementation, both differentiated for each field of action and aggregated on the institutional level.
• Support in the definition of targets and formulation of a project plan (transition plan) to bridge the gap between the assessed status quo and the defined target implementation level.
• Comparison of the scoring result with an international and (if enough regional implementations are available) national or regional level.
• Full disclosure of the findings and method of calculation.
• Provision of the full tool (free of charge) for further use in the FI as a controlling instrument and a guide to the ongoing implementation process.
• Provision of additional information and educational material provided by Kempten University of Applied Sciences and DSIK for future references.

Result:

The Sustainable Finance Compass provides quick wins for any financial institution as well as detailed medium and long-term strategies that allow FIs to become more aligned with the Sustainable Finance regulation, be more proactive with ESG criteria and become more sustainable overall. The tool is both suitable as an introduction for institutions finding their way into the topic and experienced FIs willing to test, compare and improve their Sustainable Finance implementation.

The Sustainable Finance Compass now forms the basis of the recommended approach for assessing and implementing sustainable finance in the respective FIs.
By using the Sustainable Finance Compass, every financial institution is optimally prepared for the future.