So, as a lender, you’ve committed to disclosing your environmental and social data. You’ve made public announcements, introduced internal policies, signed up to industry initiatives and started reporting your non-financial information. But do your efforts actually make a difference? Do investors — and the public — see you as a more solid, more sustainable institution?
The answer is not clear. Rating agency Scope sieved through the sustainability disclosures of 40 large banks in Europe — the region that should be at the top of the environmental, social and governance (ESG) game — and its findings paint a confusing picture.
The kind of information that is shared and how it is reported still varies greatly. Scope found that lenders have widely adopted the UN Sustainable Development Goals (SDGs) reporting framework, which, however, was initially intended to monitor a given country’s progress, rather than that of individual organisations. Within that framework, commitment on individual SDGs also varies, with some banks choosing to focus on a small, manageable number of goals, while others take a broader approach.
Other reporting frameworks are also in use, and even when they are more precise, such as the UN Principles for Responsible Banking framework, which is now supported by more than 240 lenders around the world, uniformity of disclosures is still lacking. Comparisons, therefore, remain elusive.
Banks themselves recognise the issues around data, with 91% of European banks citing availability, reliability, accuracy and comparability of data as top concerns in a study conducted by asset manager BlackRock for the European Commission and published in August.
Other industries face the same challenge, which naturally compounds banks’ own disclosures, since these rely on lenders’ ability to evaluate clients’ data.
A 2020 study by think tank CEPS had already quantified the issue beyond the banking industry. After examining more than 210 European companies, two-thirds reported their ESG data through the Global Reporting Initiative (GRI) standards, which were created nearly 25 years ago following the Exxon Valdez oil spill in Alaska.
But many of those companies have also adopted other templates that have been created since, disclosing their information based on multiple frameworks at the same time. These range from the UN Global Compact Framework (also two decades in existence) to the more recent templates of the Task Force on Climate-related Financial Disclosures and the Sustainability Accounting Standards Board. Another eight frameworks were cited in the CEPS survey; however, the research also found that companies used only part of these templates, including that of the GRI. Unsurprisingly, investors told CEPS that no meaningful comparison was possible.
Anyone involved in sustainability would know this to be true. These studies, together, make it evident for everyone else.
This is the case in Europe, too. The EU already requires companies classified as of public interest (banks included), with more than 500 employees to report on non-financial matters (as prescribed by the Non-Financial Reporting Directive [NFRD], which became effective in 2018). Still, the choice of reporting framework remains of the reportee. This may change soon, as the European bloc proposes not only to capture a greater number of companies with its sustainability legislation, but also to introduce mandatory reporting as part of its Corporate Sustainability Disclosures Directive, which would amend the NFRD and come into force in 2024.
So, back to those opening questions: do current sustainability reports matter? They matter in that they signal intention, and the more sustainability is discussed, the better. But if banks stay in this signalling stage for too long, there is a risk they will weaken the trust they need from investors and the public. It may still help win some clients and secure some deals, but it would do nothing to ease off greenwashing concerns. As Scope astutely points out in the title of its report: loose rules are good for onboarding, not trust.
The good news is that the transition to a more actionable space, where data is comparable and trusted, is within reach. As EU regulators are suggesting, it may need to happen by removing options from the table and imposing a single framework to all — unless banks have a better suggestion, of course; in which case, I would love to hear it.
Please join our global sustainability survey and share your views on how sustainability is changing (or not) your organisation and industry. It will only take a few minutes and comments will remain anonymous. We will report on our findings at the end of October.
