Governance architecture as the missing link in strategic ESG integration: A conceptual framework for banking institutions

Abstract

Environmental, Social, and Governance (ESG) integration is shifting from a voluntary practice to a global regulatory and supervisory expectation. While significant progress has been made in sustainability disclosures and climate risk modeling, banks and financial institutions still face challenges in effectively integrating ESG factors into their core business strategies and operations. This conceptual study argues that governance architecture, rather than disclosure practices or climate ambition statements, is the key to successful ESG integration. It synthesizes corporate governance theory, climate risk literature, and prudential regulation scholarship to propose a Governance-Centric ESG Integration Model (GCEIM) specifically designed for banking organizations. The model proposes that robust ESG integration depends on organizational structural alignment across board mandates and charters, C-suite incentives, enterprise risk management, and accountability processes. Advancing sustainable finance theory, this study reconceptualizes ESG integration in banking from a disclosure initiative to an organizational governance project. The study offers practical implications for banking executives and regulators seeking to enhance resilience and mitigate systemic risks amid climate uncertainty.