The Critical Role of Environmental, Social and Governance (ESG) in Lending Activities by Banks and Other Financial Institutions

The Critical Role of Environmental, Social and Governance (ESG) in Lending Activities by Banks and Other Financial Institutions

Background

The practice of responsible investing is not a new concept. It can be traced back to the early 1960s where investors became conscious of the social responsibility of their investments and business activities. The investors wanted to ensure that their investments were directed towards socially conscious industries.

More recently, the United Nations through a joint initiative sought to incorporate principles of responsible investment into mainstream investment decision-making and ownership practices through Environmental, Social and Governance (“ESG”). ESG therefore refers to Environmental, Social and Governance factors against which socially conscious investors use to assess the behaviour of entities, that they are considering for investment. They are the set standards for a company’s operations that aim to foster greater environmental consciousness, social responsibility and accountability. Indeed, many banks and other financial institutions use these standards to evaluate the riskiness of potential investments.  Banks that adopt these best practices will be well-positioned to make sound investment decisions and foster sustainability, because they play a key role in the global economy and by integrating ESG into their business operations, they can help create a more sustainable future.

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This alert is for informational purposes only and should not be taken to be or construed as a legal opinion. If you have any queries or need clarifications, please do not hesitate to contact Pamella Ager, Managing Partner, (pamella@oraro.co.ke), Anna Kandu, Associate, (anna@oraro.co.ke), or your usual contact at our firm, for legal advice.