The banking industry faces several challenges due to recent economic, geopolitical and regulatory developments. KPMG has identified the top 10 issues facing banks in 2022 and beyond, and in this article we examine the topic of ESG.
A significant opportunity for banks
Sustainable, socially responsible behavior is already expected of banks by an array of stakeholders – customers, regulators, industry analysts, and credit-ratings agencies who demand measurable assurance that banks take ESG factors into account when deciding to make loans, offer investment products, and conduct day-to-day business.
However, standardized ESG reporting in 2022 will, in all likelihood, continue to be mostly voluntary and limited. But that doesn’t mean that banks shouldn’t provide specific details when stating how they plan to meet their ESG goals - and how the goals will be measured and reported.
Banks’ ESG reports too often contain only high-level statements about a commitment to a better environment, social justice, and robust governance standards. While these reports state bold ambitions to provide stakeholders with ESG information, it appears few of these statements or reports have been assured by an independent third party. We encourage banks to have their ESG reports undergo an assurance review and to provide information about interim ESG targets and other information supporting its commitments. Banks should be aware that it is likely that such information may shortly be expected by regulators.
Stakeholders want clarity and details about banks’ activities regarding how they are managing existing portfolio companies, for example, as it relates to those companies’ carbon footprints and plans to better manage those demands. Further, stakeholders may want more concise information on such issues as a bank’s plans for investments in renewable energy businesses or nuclear power businesses. It is important to note that increased shareholder value could be tied to ESG disclosures and performance.
John Cotes, head of the Securities and Exchange Commission’s (SEC) Division of Corporate Finance, said, “SEC action on ESG is overdue … nobody else is waiting. The rest of the world is moving forward (on stiffer ESG regulation) pretty rapidly.’’1 Current expectations are that the SEC will propose rules related to ESG disclosure requirements in the early months of 2022.2