Banks lag on sustainability as regulators prepare to swoop on ESG performance
Global lenders are lagging behind sustainability goals as watchdogs increasingly look to clampdown on environmental, social and governance (ESG) performance, a new report has found.
Just half of lenders globally are ready for regulatory reporting in the next six months, while 57 per cent have admitted they will not hit net zero operations targets until 2025, according to a new report from financial non-profit organisation Efma and IT firm Avanade.
The figures paint a stark picture of the preparedness of the global financial sector as watchdogs prepare to bring firms in line with a framework set out by the task force on climate-related financial disclosures (TCFD).
The top UK watchdog the FCA now requires all UK firms with a premium listing on the London stock Exchange to report in line with the guidance as of the start of this year.
Countries are increasingly falling in line with the rules, with a 2021 TCFD report finding that firms with a market cap of over $25tn were now reporting in line with the guidance.
But Avanade’s European financial services lead Nic Merriman said the fresh figures report showed financial firms were struggling to get moving toward sustainability targets.
“Whether it’s disclosure and reporting, having a climate risk model up and running or making hard choices about whether and where to discontinue client business, there is still plenty to do,” he said.
“Integrating climate data with risk management frameworks is a major concern.”
Just 25 per cent of firms currently have a climate risk model in place, Avanade found, and concerns are growing among financial firms they will not have models in place to test the impact of climate scenarios. Some four in ten firms globally said they will not be able to test the impact of various climate scenarios for at least a year.
Inês Lobo Soares, EVP of strategy at Portuguese lender Novobanc, said lenders were pushing customers to disclose a huge amount more data to help gauge environmental impact.
“A substantial amount of new data and information is being asked of bank customers, namely micro, small and medium (SME) companies, that are not prepared to gather, monitor or report this type of information, with potential added costs to do so,” she said.
The data comes amid a global reckoning for ESG in the wake of Russia’s invasion of Ukraine, after it was revealed that supposedly ethical cash had been poured into state-backed Russian firms.