Mazars study: Banks set long-term, ambitious strategy for sustainability, but governance and ESG reporting remain work in progress

Mazars, the international audit, tax and advisory firm, launches the third 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 across all continents.

The 2021 report shows that most banks assessed have demonstrated an interest in sustainability and have already advanced significantly in their sustainability journey by implementing relevant frameworks. However, full implementation of relevant practices to achieve the transition to a socially responsible and net zero economy remains an important challenge.

Global findings: banks significantly advance in their sustainability journey  

The global analysis shows that most banks: 

1. Have allocated formal responsibility for sustainability-related matters within their board and management functions, with specific oversight processes. On average, 66% of banks now include sustainability criteria in variable remuneration, compared to 41% last year. However, only 33% of banks identify clear criteria linked to both internal sustainability initiatives and financing activities.

• Identify environmental targets for their activities, but only 24% have set net zero financed emissions targets in line with the Paris Agreement objectives. The Paris Agreement Capital Transition Assessment (PACTA) methodology is also making progress in Europe, Australia, and South America.

• Use a variety of approaches to assess their exposure to climate change risk. While 70% of banks are building scenario analysis and stress testing capabilities, gaps in data remain a challenge for assessing climate change risk. Only 19% of banks disclose on materiality of climate risk through credit or market risk metrics.

• Implement sustainability reporting standards, mostly focused on climate objectives. More countries consider making TCFD (Task Force on Climate-related Financial Disclosures) reporting mandatory and some 92% of banks have already aligned their sustainability reporting with the TCFD recommendations, compared to 76% last year. 

Progress made: 2021 vs 2020 

Since the 2020 assessment – published in February 2021 – the criteria in all four areas assessed were tightened. This adjustment not only better reflects the progress made in implementing sustainability practices, but also in showing that progress remains to be made as banks continue on the pathway to sustainability and making a contribution to low carbon economies. Due to the changes in criteria:

• More banks have set a long-term and ambitious strategy for sustainability (76% compared to 71% last year). Better scores were also obtained by banks in relation to risk management: 62% of banks integrate ESG and climate risks into risk management framework compared to 59% last year.
• Governance- and reporting-related scores decreased. Some 60% of banks have implemented measures to foster a governance for sustainability, compared to 74% last year. 77% of banks align disclosure with ESG reporting standards (vs 82% in the previous year).

Romanian banks make notable progress on sustainability

In Romania, like in most European countries, financial institutions are actively seeking new ways to reduce their climate-risk exposure, encourage net-zero carbon emissions, and develop new sustainable products. In the last few years, many banks have realised that becoming a sustainable provider is the next move, especially since more and more consumers, and here we refer to Millennials in particular, are choosing nowadays brands that have a sustainability agenda or sustainability credentials. 

„The financial world can no longer see its future as separate from the environment and climate change developments. Despite the progress made in the last years by local banks, the full implementation of relevant practices to achieve the transition to a socially responsible and net zero economy remains an important challenge and more efforts are necessary going further.”, mentioned Răzvan Butucaru, Partner, Financial Services & Advisory Leader, Mazars Romania.

At the local level, Mazars analysed the top ten Romanian banks by assets, using the public information available at Q1 2022, that can be found on every bank’s website, sustainability report, transparency report, or other sustainability policies. Findings show that:

• Only two banks out of ten have created a local sustainability report, where they conducted a formal materiality assessment to show that they prioritise the issues that have the biggest impact on their business, communities, and of course, on the environment. Although the other eight banks have not yet created this kind of report, they have started to showcase their initiatives regarding sustainability in their annual reports.

• More than half of the banks analysed have allocated formal responsibility for sustainability-related matters within their management functions. While most of the banks don’t have a sustainability manager in charge, their chief risk officers (CROs) are handling all the sustainability related opportunities and challenges.
• Five in ten banks have included in their business offering green credits for the population. Through this initiative, the local banks are helping to protect the environment by lowering the carbon footprint, and are supporting their clients with higher living standards. When we are talking about net zero emissions, the Romanian banks are planning to reach this objective in the future.

• Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Banks should evaluate their financed emissions and expand their sustainability reporting in line with the TCFD recommendations.

• intermediaries between investors and capital seekers. With their help, more capital can flow into sustainable and green investments, and this is where green bonds are playing a crucial part. In Romania, in the last two years, three banks have issued green bonds, with the scope of encouraging sustainable activities. Two out of the three green bonds have been listed on the Bucharest Stock Exchange.