How ESG can drive value for banks

What is ESG?

ESG stands for Environmental, Social and Governance. It is a set of standards that measure a company’s impact on the environment and society, as well as assessing the quality of its governance. 

CSR vs ESG

Although ESG and CSR are often used interchangeably, they have different meanings. Corporate social responsibility (CSR) is a self-regulating business model that helps businesses hold themselves accountable for the impact their actions have on employees, customers, communities and the environment. Whereas, ESG provides a framework for measuring impact, which is shared with key stakeholders, including investors, regulators, customers and employees.

Is ESG reporting mandatory for banks?

It depends on the jurisdiction, but ESG reporting is fast becoming mandatory in many key markets. And even for financial institutions and corporations that are not legally required to report, the pressure to disclose is increasing. Let’s take a look at sustainable reporting requirements in several major markets:

UK

Since April 2022, large UK companies have been required to make climate-related financial disclosures in their strategic reports, aligned with the Task Force on Climate-Related Financial Disclosures (TCFD). This applies to companies with more than 500 employees and/or £500 million turnover, as well as premium listed companies, large LLPS, and subsidiaries meeting the size threshold. The UK is also preparing to transition toward ISSB-aligned standards (IFRS S1 and S2) in 2025, aligning reporting with international expectations. 

New Zealand

The government passed legislation making climate-related disclosures mandatory for large publicly listed companies, insurers, banks, non-bank deposit takers and investment managers, affecting around 170 financial market participants.

EU

The Corporate Sustainability Reporting Directive (CSRD), which came into effect in January 2024, requires large EU companies (meeting 2 of 3: 250+ employees, €40M turnover, €20M total assets), listed SMEs (reporting starts 2026, with opt-out until 2028), and non-EU companies with €150M+ turnover in the EU (reporting starts 2028), to report. 

US

The Securities and Exchange Commission (SEC) adopted a climate disclosure rule in March 2024, requiring public companies to report on material climate-related risks and disclose Scope 1 and Scope 2 greenhouse gas emissions. However, in March 2025, the SEC voted to pause the implementation due to legal challenges.

Despite the federal rule's uncertain status, American companies have to navigate other regulatory requirements. California's climate disclosure laws, such as SB 253 and SB 261, mandate that companies with annual revenues exceeding $1 billion disclose Scope 1 and 2 emissions starting in 2026, and Scope 3 emissions in 2027, regardless of materiality. 

Asia

Malaysia

As of 2025, Malaysia requires large listed and non-listed companies to begin phased ESG reporting under the National Sustainability Reporting Framework (NSRF), aligned with IFRS S1 and S2 standards. The framework mandates disclosure of climate-related risks, governance, strategy, and Scope 1 and 2 emissions, with Scope 3 emissions phased in from 2027. The rules apply first to main market-listed companies with market capitalisation of over RM2 billion, expanding to other companies over the next 2 years.

Singapore

Singapore introduced mandatory climate-related disclosure regulations in 2024, requiring all listed companies to begin reporting climate-related disclosures aligned with the ISSB standards starting from January 2025. Large non-listed companies, defined as those with annual revenue of at least S$1 billion and total assets of at least S$500 million, will be required to comply from January 2027.

Japan

Japan requires large listed companies to report ESG information aligned with IFRS S1 and S2 standards, developed by the Sustainability Standards Board of Japan (SSBJ). Prime Market companies with market capitalisation over ¥3 trillion must begin reporting in 2027, with phased adoption for smaller firms to follow.

China

In December 2024, the Ministry of Finance introduced the Basic Standards for Corporate Sustainability Disclosure, establishing a voluntary framework for ESG disclosure, with full mandatory adoption anticipated by 2030.

How ESG can create value for banks

Clearly ESG reporting is already mandatory for many financial institutions, and regulatory expectations are evolving rapidly. Therefore, it is crucial for banks to proactively build a globally aligned ESG strategy. But beyond compliance, ESG can unlock significant commercial value for financial institutions.

‍Increasing profitability

Research shows that banks that focus on ESG issues consistently outperform their competitors. A Deloitte study found that those prioritising ESG generated over 2% higher risk-adjusted returns. This is largely due to smarter risk mitigation, stronger stakeholder trust and loyalty, and alignment with long-term economic and environmental trends. ESG frameworks can also help banks identify waste, reduce energy use, and streamline operations, helping to minimise operating costs. In fact, a McKinsey report found that cutting carbon emissions and reducing waste can affect operating profits by 60%.

Enhancing brand reputation

Stakeholders are increasingly demanding transparency about banks’ environmental and social impact. Our research revealed that 7 in 10 UK banking customers want to see evidence of their bank taking action to reduce their carbon emissions. This is even more significant among younger consumers, with research by Bank of America revealing that 56% of Gen Z banking consumers would switch banks to one more committed to ESG issues. Being transparent about ESG allows banks to improve their business reputation and customer relationships. Investors are also increasingly demanding transparency. By reporting on ESG performance, banks signal to investors that they can mitigate risks and generate sustainable long-term financial returns, helping attract investment.

Unlocking commercial opportunities

As governments, businesses, and individuals shift towards lower-carbon, more sustainable models, trillions of dollars are being redirected into clean energy, green infrastructure, sustainable housing, and climate-resilient technologies. Banks that prioritise ESG are not only more trusted partners in this transition, but also better equipped to develop and finance the products and services needed to support it, from green loans and sustainability-linked credit to climate risk assessment tools. This positions them to capture new revenue streams and expand into high-growth sectors.

Strengthening risk management 

Climate change poses growing physical and transition risks to loan portfolios and investments. By embedding ESG into credit and investment processes, banks can identify high-risk sectors, avoid exposure to unsustainable or poorly governed entities, and improve overall portfolio resilience. It also fosters a culture of long-term thinking and resilience, enabling banks to better anticipate market shifts and protect against potential reputation damage.

Conclusion

Banks have real power to shape a better world. By funding businesses that lead on ESG, or tying lending to sustainability outcomes and being transparent about progress, banks can help accelerate the shift to a low-carbon economy. This creates value not just for shareholders, but for society as a whole. And when impact and financial performance go hand in hand, everyone wins.

For information on how Cogo can help create value for your bank, get in touch today.