Reaching ESG reporting maturity in financial services
A wrap-up article on the Qorus Sustainable & Regulation Community coffee event on ESG disclosures that was held on 30 March.
Across the various jurisdictions there is a wave of sustainability, ESG and climate reporting and disclosure requirements heading towards both financial and nonfinancial corporates.
These firms have not only to collect and process a lot of new information to fill in these new disclosures, but also in a number of areas have to adjust their internal processes and strategies to match the expectations and requirements that come with these new reporting frameworks. Examples of such areas include attention to carbon footprint measurement and management, forward-looking climate scenario analysis and net zero decarbonization strategy.
For banks, these new disclosures on one hand represent a lot of effort to comply with, but on the other hand also provide an opportunity to tap into this new source of information on their large customers that will become available as BAU and will help banks to better understand the sustainability related risks and opportunities embedded in their portfolios and large customers.
On 30 March, we explored the key elements of the challenges outlined above during another great event within the Sustainability & Regulation Community, where we focused on ESG disclosures (TCFD, EU taxonomy, CSRD, EFRAG, IFRS). Together with our experienced speakers we analyzed the latest trends and challenges financial institutions are facing now: lack of standardization, data quality and reliability, regulatory uncertainty, cope and relevance of ESG factors, and we discussed how the banks could best tackle them.
The event was launched by Peter Plochan and Clotilde Bouchet, who welcomed our speakers and panelists:
• Patrick de Cambourg, Chair of EFRAG, Belgium
• Adlen Bouchenafa, Partner, Director of Sustainability, TNP Consultants, France
• Anne-Claire Ducrocq, Head of ESG Reporting, BNP Paribas, France
• Elena Leonardi, Head of Group Sustainability, Banca Generali, Italy
All the speakers brought real case studies and concrete examples of how they are managing challenges in ESG disclosures, and recognized the importance of ESG factors in achieving long-term sustainability and success.
In his keynote speech, Patrick de Cambourg, Sustainability Reporting Board Chair of EFRAG, shared updates straight from the EFRAG kitchen covering the latest developments surrounding the European Sustainability Reporting Standards (ESRS) and Corporate Sustainability Reporting Directive (CSRD), going through the key features of the European legal and regulatory regimes and highlighting the focus on interoperability and double materiality:
• Impact materiality (Inside-out): actual or potential positive or negative impacts of the reporting firm on people or the environment
• Financial materiality (Outside-in): a sustainability matter is material if it triggers or may trigger material financial effects for the reporting firm
“Sometimes it feels like the cart is in front of the horses – financial institutions are asked to report on data which is not yet there,” said Patrick de Cambourg, Sustainability Reporting Board Chair of EFRAG.
Lastly, Patrick has also emphasized the strong commitment of EFRAG towards having mandatory Scope 3 emissions reporting captured by the ESRS.
Adlen Bouchenafa, Partner and Director of Sustainability at TNP Consultants, in cooperation with which we have been building the whole Sustainability & Regulation Community, further explored the key elements of CSRD disclosure framework and highlighted the main challenges faces by the implementing institutions. Adlen emphasized the regulations should not be addressed in isolation but rather holistically in an integrated manner. He also shared tips how to ensure effective and efficient implementation of CSRD and EFRS reporting norms and he underlined a five-step approach to cover holistically the different dimensions and requirements of the CSRD regulation and ESRS:
1. Perform the regulatory analysis
2. Define the materiality
3. Evaluate the maturity and cover the gap
4. Design the ESG integrated reporting framework
5. Deployment of the ESG integrated reporting framework.
During the event we also collected via poll survey valuable perspectives from the online participants on how far along they are with the deep diving into CSRD. Despite the closing implementation deadlines (2024 onwards), according to the poll results around one fourth of institutions have not yet started looking closely into this new disclosure framework. Furthermore, not surprisingly, the participants clearly identified collecting and managing of ESG data as by far the biggest obstacle to successful implementation of CSRD.
In the panel discussion which followed, our experts reflected on the presentations and the poll results and shared their perspectives on ESG disclosures challenges.
“We have no idea if we overestimate or underestimate the final result,” said a panelist about the perspective on the complexity of Scope 3 emissions.
"ESG data is the new gold, because it is very expensive,” said another panellist about the perspective on third party data.
In particular, we asked our experts to draw attention to the areas below:
• Where do you see the ESG disclosures providing business value to your bank?
• How can you mitigate in your disclosures the risk of being accused of greenwashing?
• What do you see as the main impact on banks coming from the EU Green Claims directive and its anti-greenwashing rules?
• What would you advise banks struggling with data gaps as they prepare their ESG disclosures?
Conclusion
From the perspectives shared and discussions led by our experts, it became clear that banks are only at the beginning of their journey and there is still a long path ahead for them till they reach ESG reporting maturity, with data gaps being the main obstacle standing in their way. While there are lot of efforts and risks faced by banks along the way, such as dealing with greenwashing accusations, there are also a number of business benefits that banks can leverage from the ESG and disclosures wave and momentum.
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