Mazars launches annual Responsible Banking Practices benchmark study
Mazars, the international tax, audit and advisory firm, has today launched 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.
UK takes a leading position
The findings show that most of the UK banks take a leading position on embedding culture and governance for sustainability as well as developing long term strategic commitments and responsible products. Banks in the UK, which include Barclays, HSBC, Lloyds Bank, NatWest Group (RBS), and Standard Chartered, also score highly on the alignment of disclosures with ESG reporting standards and on the integration of ESG risks in risk management frameworks. According to the analysis, there is still room for improvement on disclosure and climate risk management, including increasing the use of scenario analysis.
Globally, the analysis shows that the banking industry now widely acknowledges opportunities and risks relating to sustainability matters. However, for all banks assessed, there is work still to be done. The full implementation of practices designed to achieve sustainability objectives remains a work in progress.
Virginie Mennesson, Mazars head of regulatory affairs, said: “It is clear that banks are increasingly committed to making their practices more sustainable, and this has led to some progress since our first study. UK banks are leading the way in many areas and we expect them to progress even more by the next reporting period, especially on climate scenario analysis and disclosures considering the Bank of England’s focus on these areas.”
The main findings from the study include:
- Banks increasingly foster a culture of sustainability and allocate responsibility for this to senior management functions. In average, 74% of banks have now implemented measures that foster a culture of sustainability and the adaptation of their governance structure, compared to 49% last year. However, banks could further improve by taking into account ESG skills in selecting their board composition and measuring ESG performance when setting remuneration.
- Most banks commit to SMART targets for sustainability, with climate-related targets the most prevalent. Methodologies for strategic alignment with the Paris Agreement have gained traction. Half (51%) of banks are piloting the Paris Agreement Capital Transition Assessment (PACTA) 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.
- Due to current regulatory focus, risk management practices are more advanced for climate risks than for broader ESG risks, with most banks building climate scenario analysis capabilities. However only a fifth (21%) of banks provide quantitative information on the materiality of climate risks, making the financial impact of climate change on banks difficult to measure
- Most banks implement sustainability reporting standards, with CDP and TCFD the most common relating to climate objectives. For banks disclosing under TCFD, the level of detail, especially with respect to banks’ strategy, metrics and targets remains low. In terms of metrics and targets, GHG emissions and climate risk metrics are the most reported. However, a key reporting challenge remains Scope 3 GHG emissions, where only a tenth (11%) of banks disclose in relation to their financing activities.
- The corporate offering is more mature than the retail offering, and climate and environmental products more prevalent than economic and social products. Over three quarters (78%) of banks developed a green bond offering whereas only a third (32%) developed green products for customers. Overall, the comparability of offering between banks remains a challenge due to a lack of standardised reporting frameworks.
Improvements since last study
The research highlights progress in each of the sustainable finance dimensions Mazars assessed at the same time last year. The average number of banks developing a responsible product offering is now 82%, compared to 47% last year. . The number of banks that foster a culture of sustainability and which have updated their governance structures accordingly is up by half (51%) while there is a similar increase (45%) in the number of banks which now align their disclosures with ESG reporting standards. This represents impressive progress, but there are still clear gaps in areas such as embedding ESG and climate criteria into risk management frameworks and implementing strategies for sustainability (22% and 20% increase respectively).
Virginie Mennesson concludes: “Banks are taking a turn towards sustainability. However, across the globe, it’s apparent that full implementation of relevant practices to reach sustainability objectives is yet to be achieved. Challenges remain, particularly in climate risk management and disclosures. Banks need to improve their methodologies to better quantify their incurred climate-related impacts in their next reporting.”