As ESG issues rise up the agenda for Financial Services institutions, 86% of senior bankers say their firm is planning to invest in the improvement of climate-related financial disclosure in 2022. But what steps will firms need to take to ensure this becomes a reality?

The report issued by DLA PIPER, international lawfirm entitled “Raising the standard: How banks can improve the quality of climate-risk financial reporting” looks into the key issues relating to climate-related financial disclosure and ESG investing, revealing that nine in ten senior bankers agree that improving related reporting practices would have a substantive impact on global efforts to reduce climate change.

The authors polled 700 senior decisions makers within banks across UK, France, Germany, Italy and the Netherlands about their plans for improving disclosures in 2022 and beyond, the challenges they face in getting to where they need to be, and whether or not climate-related issues hold priority within their businesses.

The resulting data reveals nearly nine in ten senior bankers (88%) agree that diverting capital away from environmental polluters is critical to tackling the climate crisis, with 92% of senior bankers agreeing that hitting firms with fee, margin, or other relevant financial penalties is the best way to deal with clients whose climate risk profile causes significant exposure for a relevant financial institution.

“Banks have a crucial role to play in the fight against climate change. Increasing flows of finance to low-carbon initiatives, while reducing flows to less sustainable activity, will enhance the speed and effectiveness of climate action. Climate change poses a material risk to global financial stability and financial services firms must act to stem the tide as the material costs of climate change to businesses, communities and individuals continue to rise.”

Bryony Widdup, Partner

climate-risk financial reporting

Key priorities for Financial Services institutions to consider include:

Data management

The research highlighted the indispensability of accurate, consistent and comparable data as banks increase their focus on climate risk assessments and demonstrate clear targets in achieving net zero in the emissions they finance. Banks will only succeed here, however, if their IT infrastructure is fit for purpose in enabling the gathering and managing of data.

Talent management

Talent management will be central to the ways in which banks respond to growing demands of climate reporting and disclosure. As a result, banks may need to consider ESG expertise in their succession planning (including at board level) and hiring activities, including factoring ESG expertise into hiring criteria for new appointments. Banks will also need to ensure their existing workforces are equipped with the right skillset.

Governance

Nearly half of respondents plan to allocate budget and resource to board initiatives – reflecting the growing importance of reputational and compliance risks associated with ESG. Bank boards may need to conduct ESG-focused reviews of their product and service offerings.

The report can be downloaded here.

climate-risk financial reporting

Source: DLA PIPER