As part of Seattle University’s MLS in Compliance and Risk Management program, students undertake a capstone project that synthesizes their learning into a comprehensive paper or project, showcasing their competence in compliance. For a detailed overview of the capstone course, see our first article in this series.
Professor Cynthia Scott’s capstone project and presentation discussed her comprehensive journey into Environmental, Social, and Governance (ESG) risks, particularly within the banking industry. Cynthia, an alumna and faculty member, shared insights from her extensive background in compliance and internal audit management, bringing a wealth of real-world knowledge to the topic. Cynthia became an instructor at her alma mater in 2023 and will teach a summer course in Risk Management and Auditing. She also works as the SVP Internal Audit Manager at Seattle Bank.
Cynthia’s project began after she graduated from Seattle University’s program in August 2021. She and her stakeholder, Terry Selena—also an alumna from Seattle University—began brainstorming ideas that could combine her learnings with real-world applications in banking. Cynthia explained, “When I finished my program here, we were tossing around ideas on how I could help with the bank and how to use my program learning.” The breakthrough came when Terry suggested focusing on ESG risks. After conducting a great deal of research, Cynthia dove deep into ESG risks, seeking ways to integrate them with compliance and regulatory frameworks in banking.
Building a Practical ESG Framework
Cynthia’s primary objective was to create a presentation that banks could use to incorporate ESG risks within their compliance and regulatory frameworks. However, the journey wasn’t without its challenges. “When I first started doing all the research, I was a little overwhelmed,” Cynthia recalled. “Terry helped me focus on what ESG meant for the bank itself, which helped me narrow everything down.” Focusing on how ESG risk affects a bank’s operations allowed Cynthia to bring clarity to a topic that often feels vast and complex.
She broke down ESG into three key components: Environmental, Social, and Governance risks. Cynthia’s research on environmental risks for banks included basic questions like, “How does a bank use electricity? Do they recycle? Do they shred their paper?” For social risks, she explored issues such as diversity, equity, and inclusion (DEI), employee relations, and a bank’s role in giving back to the community. As Cynthia noted, “Frank had brought in diversity, equity, and inclusion, so not only is it about labor and talent, but you have to include all this other information as well.” On the governance side, Cynthia emphasized the importance of accountability, stating, “If you don’t hold your management accountable, none of this will happen. None of this will get done for the banks or your customers.”
Applying the Framework to Banks and Credit Unions
Cynthia didn’t limit her research to just traditional banks. She also reached out to credit unions to gain a broader understanding of how different financial institutions approach ESG. In one instance, a credit union with a well-established ESG program allowed her to conduct an interview. She shared, “One of the credit unions had an extensive ESG program, and they were more than happy to do an interview with me.” This provided valuable insights, but not all institutions were as advanced. Cynthia encountered one bank that had no ESG program at all, and while they couldn’t answer all of her questions, they were eager to use her final product to help establish their own ESG strategy. “They weren’t able to answer a lot of my questions,” Cynthia said, “but they wanted my final product to help them create this program within their bank.”
To wrap her research into a practical solution, Cynthia developed a risk assessment tool and a step-by-step guide. This tool, she explained, was designed to help financial institutions apply ESG risks in conjunction with their compliance strategies. “I created a risk assessment… and a guide to use that risk assessment,” Cynthia explained. “A risk assessment is a living thing, so I had to define everything, so people would understand what they were looking at when they used the tool.”
The guide was structured to explain the core concepts of ESG risk, why they’re important, and how to apply them to the company’s corporate objectives. Cynthia emphasized that the guide could be used as a practical resource for both banks and credit unions, noting, “I realized it could be used for any company, not just banks.”
Measuring ESG Success: An Evolving Process
One of the most important aspects of Cynthia’s project was the discussion around how to measure ESG success. Cynthia acknowledged that measuring success is an ongoing process, “It’s not just a set-in-stone thing for one time,” she said. “As you know, banks evolve, credit unions evolve, and companies evolve. Their strategies change, and you have to look at each one of those three factors—environmental, social, and governance—and see how they change with your company.”
Cynthia also noted that ESG is no longer just a “nice-to-have,” but something that investors are increasingly concerned about. “Investors want to know if they’re investing in a company that is socially conscious. If they don’t think it is, they might not want to invest,” she said. She also highlighted the increasing importance of ESG disclosures, especially with the SEC’s proposal requiring public companies to disclose ESG information. “The SEC is proposing that all public companies have ESG disclosures,” she explained. “What does that look like for your company? That’s where all the regulatory and research comes in.”
To measure ESG success, Cynthia suggested using risk assessments to identify the root causes of issues, check the effectiveness of controls, and track the company’s progress over time. She pointed out, “When you do your reporting, you can use your risk assessment to report out on how you’re doing, find your root causes, and see if your controls are working.” She continued, “If your investors and shareholders are satisfied, you’ve been successful, at least for that point in time. Much like a balance sheet, it’s a snapshot, but this could be an ongoing report.”
A Valuable Tool for Organizations
The session concluded with an engaging discussion on the value of Cynthia’s tool. Cynthia’s Capstone project, a tool designed to measure and track ESG risks, was highlighted as a potentially valuable resource for companies of all sizes. She explained that while her focus was on financial institutions, the tool could easily be adapted to any organization.
Another attendee praised the way Cynthia created a shared terminology and framework for discussing ESG. “What I really liked about your project was how you were able to create a common method of talking about ESG,” they said. “You communicated that very quickly with the use of your heat map, which was novel.” Cynthia’s ability to simplify the complex concepts of ESG and present them in a clear, actionable way was a highlight of the session.
Distilling the Complexities
Cynthia Scott’s webinar presentation was a deep dive into the world of ESG risks, providing practical solutions for banks, credit unions, and other companies to manage these risks within their compliance frameworks. By developing a risk assessment tool and a comprehensive guide, Cynthia was able to distill the complexities of ESG into something tangible and actionable. “It’s all about understanding how things evolve and adapting accordingly,” Cynthia concluded, emphasizing the importance of flexibility and accountability when managing ESG risks.
For anyone looking to navigate the evolving landscape of ESG, Cynthia’s work offers a valuable resource—one that is poised to help organizations of all kinds measure, manage, and communicate their ESG performance effectively.
