Seven in ten banks globally see their ESG (environmental, social and governance) efforts as having a positive impact on their market reputation and credibility, according to research by Avanade and Efma.
Yet, only 53% will be ready to report their ESG progress to regulators in the next six months. Less than one-fifth (15%) have also achieved net carbon zero operations, while 26% say they will be carbon neutral in the next 12 to 24 months.
Moreover, only 25% of banks globally have a climate risk model ready. Almost a third (32%) are struggling with the lack of integration of climate risk data with their risk management framework.
According to the Taking sustainability seriously: Are banks ready? report, banks will need to focus on five areas to meet the challenges of successfully transitioning to a low-carbon economy:
- Showing full transparency in their operations
- ‘Lean into green’ through their product portfolio to appeal to younger customers
- Creating robust stress testing and scenario analysis for climate risk
- Leveraging technology to capture data more effectively in order to generate better reporting, scenario planning and risk management
- Making hard choices about where to disinvest completely to demonstrate a clear transition programme to a low-carbon investment portfolio.
“[Banks can] be a force for change but [they] need to move early. As with any business, a first-mover advantage benefits those that best visualise and execute their roadmaps when many are still readying at the start line. In this critical race for the future, the winners are the ones that move the fastest and make the most meaningful impact on climate change, says Varun Kumar, Southeast Asia Financial Services Client Group lead at Avanade.
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John Berry, CEO of EFMA, adds: “Banks have moved beyond merely including ESG goals in their mission statements. They are now looking at how they can enact sustainable change. Banking leaders do not view sustainability as a challenge, but a major opportunity – probably the biggest one over the next decade.”
