UK banks ‘ahead of the pack’ in climate risk exposure disclosures

UK banks are the most transparent in the world at disclosing their exposure to climate change risks, reveals a fresh report released today.

The creation of an accounting framework that incentivises British lenders to update markets on their green credentials has led to them being “ahead of the pack,” according to consultancy KPMG.

The Prudential Regulation Authority (PRA), the regulatory arm of the Bank of England that oversees the UK’s banking and insurance sector, set out the world’s first blueprint for climate-related financial risks in 2019.

The watchdog gave banks a deadline of the end of last year to embed the new standards into their reporting.

KPMG’s report indicates the PRA’s tweaking of the regulatory regime has strengthened disclosure of climate-related financial risks. 

The findings reinforce separate research that ranked London as the world’s greenest finance hub.

The City’s rapid adoption of environmental, social and governance (ESG) factors and high use of cleaner innovative financial technology led to Z/Yen to send the capital to the top of its Group’s Global Green Finance Index.

Banks based in other countries are lagging behind British lenders in improving their climate-related disclosures, according to KPMG’s study which analysed annual reports of 35 of the world’s top banks.

“More detailed progress in annual reports has slowed and varies significantly from territory to territory,” the firm said.

However, the implementation of a new sustainability accounting framework, set out by the International Sustainability Standards Board last March, is likely to raise disclosure standards.

Other regulators have followed suit in response to “users of financial statements… increasingly looking for information about the financial impact of climate-related risks,” Karim Haji, head of financial services at KPMG, said.

The US Securities and Exchange Commission has proposed climate reporting rules and the European Financial Reporting Advisory Group is also developing a package of standards.

Investors “want to understand how changes in risk appetite and business strategy filter through into the financial statements,” Haji added.