Global Economic Challenges, Esg and The Risk Management Role of Banks

Madina Tuychiyeva

E-mail:m.tuychiyeva@usat.uz

PhD student Tashkent State Transport University Senior Lecturer, Department of Economics University of science and technologies

Tashkent, Uzbekistan

https://orcid.org/0009-0002-5855-1588

ABSTRACT

The contemporary financial system faces increasing uncertainty as a result of climate issues, geopolitical developments, technological progress, and evolving social expectations. These challenges have significantly expanded the spectrum of risks faced by commercial banks and have highlighted the need to reconsider traditional approaches to risk management. In this context, environmental, social, and governance (ESG) factors are no longer perceived as secondary or reputational issues, but increasingly influence the financial stability and strategic sustainability of banking institutions.

This article explores how ESG principles have become integrated into the risk management systems of commercial banks and how they transform established risk assessment and decision-making practices. The study traces the evolution of ESG from the concept of corporate social responsibility and emphasizes its transition into a practical management framework. A particular focus is given to ESG banking, a field where financial institutions fulfill a dual role. They are subject to investor scrutiny while actively steering sustainable development through their lending and investment strategies. The research delves into non-financial risks, with a special emphasis on climate and governance concerns. These risks are distinguished by their indirect transmission channels, considerable uncertainty, and long-term ramifications.

Using international guidelines such as the UN Sustainable Development Goals and TCFD recommendations, the article demonstrates how ESG risks are transmitted into traditional banking risk categories, including credit, operational, market, reputational, and strategic risks. Special emphasis is placed on the relevance of climate risks for emerging economies, where environmental vulnerability may significantly affect borrowers’ financial performance.

The study argues that effective ESG risk management cannot rely solely on classical quantitative methods. Instead, it requires a combined approach that integrates financial indicators with expert judgment, qualitative analysis, scenario modeling, and ESG ratings. The use of ESG ratings is considered as a practical tool for improving credit portfolio diversification and reducing exposure to environmentally harmful sectors. The findings confirm that the integration of ESG principles into bank risk management enhances resilience, supports more balanced decision-making, and contributes to long-term sustainable development