Manuscript Topics

Financial institutions, when determining the criteria for assessing the risk of transactions, select entities by excluding entities that do not meet the requirements specified by them from the availability of financial services. In turn, entities fulfilling the criteria, depending on the assessment of the level of transaction risk, conditioned by the degree of implementation of the criterion, are differentiated by financial institutions in terms of terms of service (including price, range of services, level of monitoring, legal repayment security, etc.). Criteria for assessing the risk of transactions change under the influence of economy changes. This is particularly evident in the conditions of "greening" the economy and social inclusion. These two phenomena referring to the environmental and social pillar of sustainable development strongly weigh on the necessity of extending the risk assessment criteria by financial institutions for the ESG risk (environmental, social, corporate governance). The demand for extending the risk assessment methodology with ESG components is emphasized by the Environmental Program Financial Initiative (UNEP FI), and the state of implementation of this postulate by financial institutions, depending on the country and institutions, remains at different levels of advancement.

The SI aims to explain the decision criteria adopted by financial institutions in the process of transaction risk valuation in terms of the presence of ESG criteria and to diagnose the impact of including these criteria in the risk assessment process by financial institutions on business decisions, leading as a consequence to building new value in the form of a sustainable business model. Financial institutions, respecting ESG criteria, may take various actions affecting entrepreneurs, including completely excluding certain sectors from cooperation (e.g. dirty business representatives), diversify the cost of the service (most often the cost of obtaining financing), require additional security measures, or increase the frequency and scope of transaction monitoring. As a result of these activities, entrepreneurs may decide to carry out adaptation changes to allow better matching of the business model to the ESG criteria and thus increase the availability of financial services.

Keywords:
sustainable finance
green finance
banking
financial markets
business models
SME’s

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