Risk-Based Approach Towards Sustainable Lending
In the risk-based approach, credit risk analysis takes into account various social and environmental elements and risks, which can influence the likelihood of default and the expected lending rate.
Bank loans typically have a maturity of less than ten years, whereas social and environmental concerns are longer-term (though they may materialize much sooner than predicted). As a result, myopic bankers may overlook these risks when making short- to medium-term credit decisions. Additionally, underlying collateral such as real estate may have longer maturities and depreciate in value. Companies that fail to adjust their business strategies may become unsustainable in the short to medium term.
Mastering Sustainable Finance: ESG, Investments, & Corporate Strategy
Mastering Sustainable Finance: ESG, Investments, & Corporate Strategy
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