Risk management of green corporate loans : A study of banks’ operational risk management relative to ESG rating and sustainability reporting as assessment tools

In the banking sector, there is an ongoing development in green financing with the emergence of green corporate loans. However, there are variations in banks risk’ management and the level of acceptance for issuing green loans. Similarly, there are disparities in the role of different sources of information to assess organisational risks, as per ESG ratings and sustainability reporting. As for now, there is a limited level of research of the operational work in this area as risks and risk management are dynamic and changes with the development of society. Thus, this study explores the operational risk management of green corporate loans and perceives the role of organisations’ ESG rating and sustainability reporting in the same context when assessing risks. The study applies a qualitative method with triangulation, as it combines empirical material from five semi-structured interviews and five sustainability reports from the respective bank to get nuances of the research area. The results show that risk management is partially based on bankers' own perceptions of companies and their relationships with their clients. The level of acceptance of risks is spread which delimits standardisations in processes of assessment. Individual frameworks are used by banks to manage green corporate loans, but these require continuous development and some environmental knowledge. Additional sources of information in assessments therefore play a big role and can be seen as the main source to understand organisations and their related risks. However, organisations’ ESG ratings and sustainability reporting are still perceived with a lack of credibility and should be used with precaution in the assessment. Thus, this study contributes to an extension of the empirical material as it demonstrates implications with variations in risk management and provides indications of the role of additional information sources when assessing risks.