- Some of the largest banks in Africa, the Americas, Asia-Pacific and Europe assessed to identify best practice and trends in their management of climate change risk and broader social and governance issues
- Banks have made progress across all assessed sustainable finance dimensions since 2020 edition of the study
- Average percentage of banks developing a responsible product offering is 82% – compared to 47% last year
Mazars, the international tax, audit and advisory firm, launches the 2021 edition of its annual Responsible banking practices benchmark study. The global study assesses the sustainability practices of 37 of the world’s largest banks based in Europe, Africa, the Americas, Asia-Pacific.
The analysis shows that the banking industry now widely acknowledges opportunities and risks relating to sustainability matters. However, full implementation of practices designed to achieve sustainability objectives remains a work in progress.
„Climate risk and ESG risks are critical global and economic issues and need to be treated as such. Locally, there is an increasing awareness among banking institutions of the implications of climate change to the stability of the financial system and overall economy, however improvements are still to be done in respect of implementing measures that foster a culture of sustainability and adapt the governance structure, promoting products and services that support climate and environmental sustainability or consider climate and ESG risk factors into governance frameworks, risk assessment processes, reporting and overall business strategies.”, mentioned Răzvan Butucaru (photo), Partner, Financial Services & Advisory Leader, Mazars Romania.
Global findings: banks make notable progress on sustainability
The global analysis shows that most banks assessed:
- Foster a culture of sustainability and allocate responsibility for this to senior management functions. On average, 74% of banks have implemented measures that foster a culture of sustainability and adapted their governance structure, compared to 49% last year. However, integration of Environmental, Social and Governance (ESG) skills in selecting board composition, and the measurement of ESG performance when setting remuneration, remain infrequent practices.
- Commit to SMART targets for sustainability, with climate-related targets the most prevalent. Methodologies for strategic alignment with the Paris Agreement have gained traction: some 51% of banks are piloting the PACTA (Paris Agreement Capital Transition Assessment) methodology to align their financial portfolios with the Paris Agreement objectives. However, this has yet to be reflected in banks’ official commitments to climate neutrality.
- Have risk management practices that are more advanced for climate risks than for broader ESG risks – with most building climate scenario analysis capabilities. However, the financial impact of climate change on banks remains challenging to measure due to a lack of quantitative information. Only 22% of banks provide quantitative data on the materiality of climate risks.
- Implement sustainability reporting standards, mostly focused on climate objectives, with CDP (Climate Disclosure Standards Board) and TCFD (Task Force on Climate-related Financial Disclosures) recommendations the most common. In terms of metrics and targets, GHG emissions are the most reported. A key reporting challenge remains Scope 3 GHG emissions; only 11% of banks disclose matters in relation to their financing activities.
- Have a corporate offering that is more mature than the offering for individuals, and climate and environmental products are more prevalent than economic and social products. For example, 78% of banks have developed a green bond offering, whereas only 32% have developed green products for individuals. Comparing banks’ offerings remains a challenge due to a lack of standardised reporting frameworks.
Leila Kamdem-Fotso, Partner, Mazars says: “It is clear that banks are increasingly committed to making their practices more sustainable, and this has led to progress since our first study. The findings are encouraging, but they also reveal the work that remains to be done. Banks need to fully implement relevant practices, particularly in climate risk management and disclosures, if they are to meet sustainability objectives. One way of doing this is to improve methodologies and better quantify incurred climate-related impacts in their reporting. Positive developments in this area could allow banks to fully play their role in shaping a more sustainable future for the global economy.”
Improvements across all areas: 2021 vs 2020
Comparing the recent results with our 2020 assessment, banks have made progress across all of the sustainable finance dimensions analysed:
- The average percentage of banks developing a responsible product offering is now 82%, compared to 47% last year.
- Banks that foster a culture of sustainability and have updated their governance structures accordingly is up by half (51%) while there is a similar increase (45%) in the percentage of banks that align their disclosures with ESG reporting standards.
- There are clear lags in areas such as embedding ESG and climate criteria into risk management frameworks and implementing strategies for sustainability (22% and 20% increase, respectively).
„The banking industry plays an important role in the proper functioning of economic and financial mechanisms, with an impact on macroeconomic developments and improving the degree of economic prosperity in Romania. Similar to the global plan, one of the challenges that banks have is to ensure, through responsible banking practices, the involvement in sustainable and enduring projects that can accelerate economic efficiency, social equity, and environmental preservation through risk management practices.”, mentioned Florin Dănescu, Executive President of the Romanian Banking Association.
French and UK banks lead on culture, governance, strategy, and offering
French and UK banks take a leading position on culture and governance, strategy, and the development of a responsible product offering. Banks from both countries score highly on the alignment of disclosures with ESG reporting standards and integration of ESG risks in risk management frameworks. There is room for improvement on the use of climate scenario analysis for risk management purposes and on disclosures. The Bank of England, Banque de France, and the European Central Bank are all increasing their focus on these areas.
North American banks perform well on ESG disclosures and more
North American banks perform well on governance, strategy, ESG disclosures, and responsible product offering. North American banks have done well in the implementation of ESG disclosures, where they have outperformed French and UK banks on average. As with French and UK banks, there is still room for better integration of ESG risks into their risk management framework.
South American banks stand out for governance and sustainability
South American banks perform well on governance and sustainability. But they need to work on the integration of ESG risks, including climate risks within their risk management frameworks, and the development of a responsible product offering.
Asia-Pacific banks perform well on product offering
Asia-Pacific banks perform particularly well with respect to their responsible product offering. Two-thirds of these banks propose sustainable services and products across all their business lines. Overall scores for the region show room for improvement on strategy, risk management and disclosures. In Hong Kong, New Zealand and Australia, new regulation is expected to build climate resilience and effective disclosures and will likely develop a more systematic approach to sustainability.
The Mazars benchmark assesses the sustainability practices of a sample of 37 banks. We have focused our analysis on banks based in Africa, the Americas, Asia-Pacific and Europe. The banks selected are the largest in their respective geographies by total assets.
Most of the banks selected have demonstrated a significant interest in sustainability and climate change by implementing frameworks, participating in the United Nations Environment Programme Finance Initiative (UNEP FI), and/or committing to the UNEP FI Principles for Responsible Banking (PRB). This study builds on previous Mazars reports published in 2020: “Responsible banking practices, benchmark study” and “How banks are responding to the financial risks of climate change”.
The banks selected are the largest in their respective geographies based on their total assets