Leading Banks Slowed Down Progress on Climate-Related Disclosures, Says Study

According to a new analysis from KPMG International Standards Group, progress on climate-related disclosures in annual reports by some of the world's largest banks halted in 2021. The investigation, which is now in its second year, looked at the climate-related disclosures in 35 leading banks' most recent annual reports worldwide, giving investors, regulators, preparers, and other important people information.

Despite growing agreement on the need for greater climate impact transparency, the findings show that, while many institutions are on a clear path toward greater voluntary disclosure, with 100% of banks surveyed providing some form of climate-related disclosure, more detailed progress in annual reports has slowed and varies significantly by territory.

Banks based in jurisdictions that have already enacted stricter climate-related disclosure regulations have made the most progress, with UK banks leading the race. Meanwhile, some jurisdictions with traditionally lower levels of annual report disclosure are catching up with those with more advanced disclosures.

The creation of the International Sustainability Standards Board (ISSBTM) is a significant step toward establishing a global standard for investor-relevant sustainability reporting, including climate reporting. In anticipation of the ISSB's new disclosure criteria, KPMG's study suggests that some banks may have taken a wait-and-see attitude until they have greater clarity regarding the new standards.

Despite the slow development, KPMG's analysis shows that banks are aware of climate-related issues, especially when it comes to describing the risks they have identified and how they have built up their governance frameworks to manage them. Given banks' longstanding focus on risk management, it is not surprising that the vast majority of those examined provide extensive transparency in this area.

Seventy-seven per cent of the banks polled say they're incorporating climate-related risks into their overall risk management framework and are beginning to use more "business as usual" processes for identifying, assessing, managing, and reporting climate-related risks.

According to many of them, the climate-related risk is an overarching issue that affects all of the banks' other risks. Credit risk, reputational risk, compliance risk, and operational risk are the most typically impacted other risks. Although credit risk disclosures are given in the front section of annual reports, few institutions link those disclosures to financial statement implications.

Source: KPMG