Financial institutions play a central role in the global shift toward a more resilient and low-carbon economy. Their lending, investing, and underwriting decisions influence how capital moves, which companies scale, and how transition pathways take shape. Expectations for transparency and action are rising across regulators, investors, clients, and civil society. A growing number of jurisdictions are adopting International Sustainability Standards Board (ISSB) reporting standards, while supervisory authorities are strengthening oversight of climate and sustainability reporting.
ESG is no longer a secondary concern. It is an essential element of financial stability, an indicator of long-term value, and a way for institutions to build trust with stakeholders. Climate-related losses have reinforced this shift. In 2024, insured losses from natural catastrophes reached an estimated USD 137 billion, according to Swiss Re Institute, highlighting how climate risk is now a material financial consideration across portfolios. These pressures make it more important than ever for financial institutions to manage ESG information with clarity and confidence.
Why ESG is challenging for financial services firms
ESG integration is difficult for financial institutions because their exposure is broad and varied. Banks, insurers, and asset managers work across large portfolios that span many sectors and geographies. Their risk profiles depend on the sustainability performance of hundreds or thousands of counterparties, not just their own operations. Most companies they finance still report inconsistent or partial ESG data, especially around Scope 3 emissions and climate transition plans.
At the same time, disclosure expectations are changing quickly. ISSB standards are beginning to influence reporting across multiple jurisdictions. CSRD is raising the level of detail required from companies operating in or connected to the European Union. TCFD, though now officially disbanded, remains a foundation for many climate disclosure frameworks, including supervisory rules in Canada, the United Kingdom, and parts of Asia. These overlapping requirements make it hard for global institutions to create consistent internal workflows and anticipate upcoming regulatory shifts.
Key ESG challenges in financial institutions
Financial institutions face ESG challenges that are distinct from those in other industries. Their impact is largely indirect and embedded in what they finance. That makes it harder to measure and manage because ESG exposure is spread across diverse business lines. It also means institutions must understand the practices of clients and investees, many of whom operate in regions or sectors with limited disclosure.
Fragmented and inconsistent ESG data
Most institutions gather ESG information from a mix of client reports, public disclosures, rating agencies, and third-party data providers. These inputs often use incompatible metrics, calculation methods, and formats. As a result, data quality varies widely. Some clients may share detailed climate strategies while others provide only basic emissions figures or none at all.
Data gaps have real consequences. They limit the accuracy of financed-emissions estimates and make it harder to benchmark performance or compare entities within the same sector. Scenario analysis is also affected when institutions must rely on incomplete or non-comparable information. Publications by the Network for Greening the Financial System (NGFS) regularly highlight the importance of consistent data for credible climate risk modeling. When data is fragmented, teams spend more time reconciling sources and less time acting on insights.
đź’ˇ Manifest Climate brings this information together in one platform, helping institutions normalize ESG data, benchmark disclosures, and produce consistent assessments that support strategic decisions.
Regulatory complexity and evolving disclosure requirements
Financial institutions must meet expectations under ISSB, CSRD, and SFDR, as well as jurisdiction-specific rules like OSFI’s B-15 Guideline in Canada. Each framework requires different levels of detail on governance, strategy, risk management, and metrics. Timelines and scoping rules also vary. For global institutions, aligning internal systems with these requirements is a major undertaking.
đź’ˇStaying ahead of evolving expectations requires ongoing monitoring and internal coordination. Manifest Climate helps institutions track regulatory changes, map requirements to their existing data, conduct comprehensive ESG assessments and spot disclosure gaps early so teams can address issues before reporting deadlines.
Difficulty measuring and managing climate risk
Climate risk management is complex for financial institutions because their exposure comes from the companies they support. Measuring financed emissions and understanding how transition and physical risks affect portfolios require detailed, forward-looking information. Many counterparties still provide limited visibility into their emissions, adaptation plans, or transition readiness.
Climate scenario modelling adds another layer of complexity. Institutions are expected to evaluate how various climate pathways affect credit quality, market risk, and long-term portfolio resilience. These assessments require consistent data inputs and specialized analytical tools. Without them, it becomes difficult to quantify exposure or identify which clients face the highest risk under different climate futures.
This indirect exposure creates accountability pressures. Institutions may face supervisory reviews or investor scrutiny if their financing activities support high-emission or climate-vulnerable sectors without robust risk controls. Systemic risk also plays a role. If significant portions of portfolios are exposed to transition shocks or physical hazards, broader financial stability could be affected.
đź’ˇ Manifest Climate gives institutions the tools to integrate climate data, assess exposure, and guide decision-making with clearer insights. The platform also helps teams understand how their disclosures align with regulatory expectations, reinforcing both compliance and long-term resilience.
| Case study: How KingSett Capital improved ESG benchmarking with centralized data KingSett Capital, a Canadian private equity real estate firm with USD 18 billion in assets, needed a clearer way to compare its climate and sustainability performance against peers and emerging standards. The team knew that public disclosures contained valuable insights, but finding them was nearly impossible at scale. Each benchmarking exercise required hours of searching through long PDF reports, and even then the results were incomplete. As Vice President of Sustainability and Resilience Kit Milnes explains, “After spending hours and hours on it, you don’t even know what the takeaway is or if any value came of it.”KingSett turned to Manifest Climate to bring structure and consistency to this process. The platform gave the team instant access to peer disclosures, regulatory expectations, and industry trends, all organized in a way that made it easy to compare performance across asset classes and regions. “It’s probably the most sophisticated benchmarking tool in the market,” Milnes says. With automated insights, KingSett could quickly identify risks, understand where it was leading or lagging, and connect external context to internal strategies.This shift gave the team the capacity to run deeper analyses that were previously out of reach, strengthening both their reporting and long-term climate planning. -> Read the full case study |
Strategies to overcome sustainability challenges
Improving ESG performance requires coordination across risk, sustainability, finance, and compliance teams. Institutions can strengthen their ESG foundation by focusing on several key strategies that support better data, governance, and decision-making.
Conduct a portfolio-level risk assessment
A comprehensive view of climate and sustainability risk across lending and investment portfolios helps institutions identify where exposure is concentrated. Climate scenario analysis and stress testing are essential tools for understanding how different pathways influence credit risk, asset values, and business model resilience.
Using sector-specific and geography-specific models improves accuracy. Certain regions may have higher physical risk exposure, while high-emission sectors may face sharper transition pressures. Understanding these nuances helps institutions prioritize engagement and develop targeted risk strategies.
Optimize data and disclosures
Standardized ESG data enables more reliable decisions. Institutions can improve data quality by aggregating information from clients, investees, and third-party sources into a consistent format. Regular engagement with clients can also encourage better reporting of emissions, governance practices, and transition plans. Stronger data foundations reduce the risk of inconsistencies and make internal and external reporting more credible.
Use risk assessment to weight decision-making
Climate risk insights should inform credit, underwriting, and investment decisions. Institutions can adjust loan terms for higher-risk clients, strengthen due diligence processes, or increase capital allocation toward low-carbon sectors. Sustainable finance and transition finance products can also help clients invest in decarbonization and resilience measures.
Strengthen governance and oversight
Governance structures ensure climate and sustainability issues are integrated into core business activities. Many institutions are creating board-level committees dedicated to climate oversight or embedding climate considerations into enterprise risk management frameworks. These steps help link ESG issues to long-term financial performance and strategic planning.
Practice stewardship
Active engagement is a powerful tool for influencing client and investee behaviour. Financial institutions can use their position to encourage better disclosure, strengthen governance, and support credible transition plans. Stewardship is becoming a key expectation from investors and regulators, particularly as institutions play a larger role in shaping real-economy decarbonization.
Align reporting with regulatory frameworks
Proactive alignment with TCFD, CSRD, SFDR, and domestic guidelines helps institutions avoid compliance risks and build trust with stakeholders. Internal reporting tools can streamline this process and ensure disclosures remain consistent across regions. Staying ahead of regulatory shifts reduces operational stress and improves transparency.
How technology transforms ESG management
Manual ESG processes create bottlenecks. Teams often manage disclosures in spreadsheets, review long PDF reports, and reconcile data manually. These workflows are time-consuming and increase the risk of inconsistencies.
Technology is changing this. Automation, machine learning, and natural language processing can standardize data, accelerate portfolio analysis, and provide faster insights into climate-related risks and opportunities. Digital tools also help institutions benchmark their performance against peers and respond more quickly to regulatory changes.
Manifest Climate supports these needs by turning complex ESG information into clear recommendations and actionable insights. The platform helps teams run custom assessments, identify gaps in their disclosures, and integrate ESG data across the organization. This reduces manual workloads and strengthens decision-making.
Future sustainability priorities for financial institutions
The next stage of ESG integration will focus on higher-quality data, interoperability across systems, and stronger climate risk modeling. As global standards begin to converge, institutions will need tools that help them compare information across jurisdictions and create consistent internal workflows.
Mandatory assurance of sustainability disclosures is also becoming more common. This will raise expectations for data accuracy and audit-ready reporting. Climate considerations will play a bigger role in loan pricing, capital planning, and product development as institutions move from compliance to strategic integration.
The financial sector will also place greater emphasis on climate-aligned stewardship and transition finance. Supporting clients with credible transition pathways will be essential as decarbonization accelerates across sectors.
Technology partnerships will continue to expand as institutions depend on digital platforms to handle regulatory complexity, consolidate data, and surface insights that support long-term resilience.
Solve ESG challenges with confidence
ESG challenges can be complex, but they are manageable with the right data, tools, and governance structures. Financial institutions that take a holistic approach can strengthen their resilience, improve transparency, and meet rising expectations from regulators and investors.
Manifest Climate helps institutions navigate this landscape with clarity. By centralizing ESG data, simplifying regulatory alignment, and offering actionable guidance, the platform supports faster reporting, better risk management, and more informed decision-making.
If you want a clearer view of your ESG performance and a more confident approach to disclosure, book a demo to see Manifest Climate in action.
