Banking’s sustainability reckoning
Written by Ravi Venkataratna, Senior Industry Principal, Infosys Finacle, and Mehul Jayendra Shah, Director Marketing – ESG, Infosys Finacle, this article explores banking’s sustainability reset at a pivotal moment. They cut through ESG rhetoric to show how measurable impact, data, and responsible innovation are redefining what credible sustainable banking looks like.
Written by Ravi Venkataratna, Senior Industry Principal, Infosys Finacle, and Mehul Jayendra Shah, Director Marketing – ESG, Infosys Finacle, this article explores banking’s sustainability reset at a pivotal moment. They cut through ESG rhetoric to show how measurable impact, data, and responsible innovation are redefining what credible sustainable banking looks like.
For years, ESG principles dominated boardroom conversations and investor presentations, often amplified through glossy campaigns and lofty pledges. That era is now ending. The term ‘ESG’ itself began to fade last year, weighed down by political polarization, fatigue from over-marketing, and growing skepticism about greenwashing. Banks are quietly retiring the rhetoric because symbolic narratives without measurable impact no longer protect credibility, they destroy it.
This is not a retreat from sustainability. It is a wake-up call. Regulatory pressure is intensifying across major markets, demanding verifiable climate disclosures, robust governance, and accountability frameworks. Investors are doubling down on transition commitments, treating climate and social risks as core business risks. Capital flows into sustainable assets remain strong, signaling a decisive shift from idealism to execution.
As we enter 2026, banks must embed sustainability into credit decisions, risk models, data architectures, and customer engagement. Incremental disclosures and siloed ESG teams will not suffice. Success will be measured by outcomes that withstand regulatory, investor, and societal scrutiny.
Authors
Three forces, one sustainability reset
1. Financing models for decarbonization and transition
Traditional green finance, while important, cannot fund the scale of transition required across carbon-intensive sectors. Banks are moving toward a spectrum of financing models tailored to sector maturity and technological readiness rather than binary green classifications. Transition-linked loans are gaining traction, rewarding borrowers for achieving validated milestones such as emissions intensity reductions in hard-to-abate sectors like steel and cement. This approach enables banks to support credible transitions without excluding industries critical to economic development.
Blended finance frameworks are emerging as a cornerstone of this evolution. By pooling public capital, private investment, and multilateral guarantees, these structures de-risk large-scale projects that would otherwise struggle to attract commercial financing. Initiatives such as the ASEAN Catalytic Green Finance Facility and COP30’s Blue Entrepreneurship Breakthrough exemplify how blended finance is operationalizing climate impact at scale. With global targets calling for mobilization of USD 1.3 trillion annually in climate finance by 2035, banks will play a pivotal role in structuring innovative, risk-mitigated solutions that accelerate decarbonization, particularly in emerging markets.
Portfolio strategies are also becoming more sophisticated. Banks are classifying clients based on transition readiness and applying differentiated lending models and pricing structures. This portfolio-wide approach balances risk and opportunity while scaling transition finance responsibly. In 2026, expect transition finance to move decisively from intent to implementation.
2. Responsible AI as a sustainability accelerator
Artificial intelligence is emerging as a force multiplier for sustainability in banking. In 2026, AI will no longer sit at the periphery of sustainability initiatives - it will become foundational. One immediate impact is on climate risk assessment. AI-driven models integrating satellite imagery, geospatial data, and historical loss patterns are enabling banks to generate granular, forward-looking risk insights. Regulators increasingly expect credible climate risk integration into credit and risk frameworks, and AI is making this possible at scale.
AI is also advancing financial inclusion. Alternative data-powered scoring models extend credit access to underserved populations, while continuous monitoring reduces bias over time. Simultaneously, AI-enabled fraud detection and financial crime prevention are strengthening trust and resilience in the financial system.
On the customer side, AI-powered tools are embedding sustainability into everyday financial interactions. Banks are piloting dashboards that allow clients to track and mitigate emissions across operations, from card spending to supply chain networks. These capabilities help businesses translate sustainability goals into actionable steps.
However, scaling AI responsibly is critical. Governance frameworks addressing explainability, transparency, and bias monitoring will be essential. Institutions that invest early in responsible AI will not only meet regulatory expectations but also unlock confidence to deploy AI at scale, positioning it as a trusted engine for sustainable banking transformation.
3. Data depth and expanding sustainability consciousness
Regulation is moving from disclosure‑driven reporting to evidence‑based performance - requiring standardized metrics, independent assurance, and demonstrable outcomes that withstand supervisory scrutiny. Banks are expected to build robust data infrastructures and audit-ready sustainability flows across business lines. This push is embedding sustainability into the daily fabric of banking functions like lending, underwriting, payments, and product design.
In Europe, the European Banking Authority’s guidelines on ESG risks demand integration into credit risk management and governance processes. Similar momentum is visible in emerging markets, where frameworks like India’s Business Responsibility and Sustainability Reporting are influencing how banks assess SME borrowers. Decision-making is expanding beyond direct counterparties to include ecosystem-level assessments, factoring in supply chain emissions, community impact, and downstream climate risks.
The cumulative effect is a more holistic, data-rich approach to sustainability. Banks are moving beyond compliance-driven disclosures toward measurable, defensible impact. This evolution positions the industry to drive real-world outcomes, reinforcing sustainability as an operating reality rather than a marketing narrative.
The road ahead
The urgency remains, but pathways are more complex and must be grounded in economic and geopolitical reality. For banks, 2026 and beyond is about embedding measurable impact into core decision‑making - aligning capital allocation, risk, and product design with credible transition plans, backed by robust data and responsible AI. Banks that combine resilience with agility - testing, learning, and adjusting as conditions shift - will navigate the long journey ahead and create durable value. Those that hesitate risk irrelevance in a market where sustainability is both a license to operate and a driver of long‑term performance.
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