The challenges in integrating ESG factors into banks’ credit department: a knowledge management enhanced framework

Abstract

Purpose Assuming that knowledge management is a pivotal issue in business to improve and maintain competitive advantages, this paper aims to investigate how knowledge management is useful to face challenges about the integration of environment, social and governance (ESG) factors, filling the gap in the literature regarding knowledge management and ESG in the banking world by considering a real case. Design/methodology/approach Starting from the analysis of the more relevant literature on the topic, this paper describes an illustrative real case through interviews with the credit department of an Italian bank that has adopted a specific sustainability approach. This paper discusses this case in the context of the outlined theoretical background to explore the trends and challenges of ESG integration. The case study allows us to evaluate and expand our theoretical framework, leading to a greater understanding of the complex phenomenon under investigation. Findings Based on the analysis of the literature combined with the insights that emerged from the experience of the real case, this study shows that there are three primary factors to consider: data issues, competencies and workflow. This study outlines an enhanced knowledge management framework displaying the complexity emerging from the integration of ESG into a bank’s credit department and identify the best practices to pursue. Practical implications Given the increasing pressure toward the incorporation of ESG factors into the banking sector, the practical implications of the study are relevant as they provide guidelines for action. Specifically, the practical problems highlighted by the real case, like the priority on themes such as questionnaires, the need for ad hoc commissions and workflow, drive the attention of decision-makers on key aspects to effectively adopt an advanced knowledge management approach aimed at improving the ESG integration. Considering the effect of the banking system on the economy, the best practices this study has identified can also have a positive impact on society as a whole. Originality/value The proposed enhanced knowledge management framework offers a guideline to orchestrate ESG integration into banks’ credit departments, considering the increasing need to frame a sustainability-oriented strategic approach that emerges from academic and practical enquiries. This research represents an initial attempt to investigate the integration of ESG factors in the banking system through the lens of knowledge management. The strategic nature of the ESG approach clearly appears in a dynamic environment where stakeholder pressures and regulatory evolutions are strong.