Banks set ambitious long-term sustainability strategy, but ESG governance and reporting still work in progress – The Diplomat Bucharest

Mazars, an international audit, tax and advisory firm, launches the third edition of its annual report Comparative study of responsible banking practices. The global study assesses the sustainability practices of 37 of the world’s largest banks based on all continents.

The 2021 report shows that most of the assessed banks have shown an interest in sustainability and have already made significant progress in their sustainability journey by implementing relevant frameworks. However, the full implementation of relevant practices to successfully transition to a socially responsible and net zero economy remains a significant challenge.

Global Findings: Banks are making significant progress on their sustainability journey

The overall analysis shows that most banks:

  1. Have assigned formal responsibility for sustainability issues within their board and senior management functions, with specific oversight processes. On average, 66% of banks now include sustainability criteria in variable compensation, compared to 41% last year. However, only 33% of banks identify clear criteria related to both internal sustainability initiatives and financing activities.
  • Identify environmental goals for their activities, but only 24% have set net-zero funded emissions goals in line with Paris Agreement goals. The PACTA (Paris Agreement Capital Transition Assessment) methodology is also progressing in Europe, Australia and South America.
  • Use various approaches to assess their exposure to climate change risk. While 70% of banks are implementing scenario analysis and stress testing capabilities, data gaps remain a challenge for assessing climate change risks. Only 19% of banks disclose the materiality of climate risk through credit or market risk indicators.
  • Implement sustainability reporting standards, primarily focused on climate goals. More countries are considering making TCFD (Task Force on Climate-related Financial Disclosures) reporting mandatory and some 92% of banks have already aligned their sustainability reporting with TCFD recommendations, up from 76% last year.

Progress made: 2021 vs 2020

Since 2020 review – published in February 2021 – the criteria in the four areas assessed have been strengthened. This adjustment not only better reflects progress in implementing sustainability practices, but also shows that progress remains to be made as banks continue down the path of sustainability and contribute to low-carbon economies. Due to changes in criteria:

  • More banks have defined an ambitious and long-term sustainability strategy (76% compared to 71% last year). Better scores were also obtained by banks in terms of risk management: 62% of banks integrate ESG and climate risks in the risk management framework, compared to 59% last year.
  • Scores related to governance and reporting have decreased. Some 60% of banks have implemented measures to promote sustainable governance, compared to 74% last year. 77% of banks align their communication with ESG reporting standards (compared to 82% the previous year).

Romanian banks make notable progress in sustainability

In Romania, as in most European countries, financial institutions are actively seeking new ways to reduce their exposure to climate risk, encourage net-zero carbon emissions and develop new sustainable products. Over the past few years, many banks have realized that becoming a sustainable supplier is the next step, especially as more and more consumers, and here we refer in particular to millennials, are now choosing brands that have a sustainability program or sustainability credentials.

The financial world can no longer see its future independent of the changing environment and climate change. Despite the progress made in recent years by local banks, the full implementation of relevant practices for a successful transition to a socially responsible and net zero economy remains a significant challenge and more efforts are needed to go further..”, mentioned Răzvan Butucaru, Partner, Head of Financial Services and Consulting, Mazars Romania.

At the local level, Mazars analyzed the top ten Romanian banks by assets, using publicly available information as of the first quarter of 2022, which can be found on each bank’s website, sustainability report, transparency report or other sustainability policies. The results show that:

  • Alone two out of ten banks created a local sustainability report, in which they conducted a formal materiality assessment to show that they prioritize the issues that have the greatest impact on their business, their communities and, of course, the environment. Although the other eight banks have not yet created this type of report, they have started to present their sustainability initiatives in their annual reports.
  • More … than half of the banks analysis have formally allocated responsibility for issues related to sustainable development within their management functions. While most banks do not have a sustainability officer in charge, their chief risk officers (CROs) manage all sustainability opportunities and challenges.
  • Five out of ten banks have included in their commercial offer green credits for the population. Through this initiative, local banks contribute to protecting the environment by reducing the carbon footprint and supporting their customers towards a higher standard of living. When we talk about net zero emissionsRomanian banks plan to achieve this goal in the future.
  • Working Group on Climate-Related Financial Disclosures (TCFD). Banks should assess their funded issues and expand their sustainability reporting in line with TCFD recommendations.
  • intermediaries between investors and capital seekers. With their help, more capital can be invested in sustainable and green investments, and this is where green bonds play a crucial role. In Romania, over the past two years, three banks have issued green bonds, with the aim of encouraging sustainable activities. Two of the three green bonds have been listed on the Bucharest Stock Exchange.

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Helen D. Jessen