According to data from ISS ESG, most of the commercial bank and capital markets industry are contributing poorly to the United Nations’ Sustainable Development Goals (SDGs).
The responsible investment arm of Institutional Shareholder Services (ISS) said in a report that the majority of commercial banks and capital markets industry companies rate below Prime regarding their contribution towards the UN SDGs due to the poor environmental and social aspects of their ESG rating.
Companies in the industry perform most strongly in ‘business ethics’ with an average grade of C+; followed by ‘labour standards and working conditions’ with an average grade of C. In both ‘customer and product responsibility’ and ‘sustainability impacts of lending and other financial services/products’ the average grade is D+ while ‘sustainable investment criteria’ has an average grade of D (see graph).
“There are still comparably few companies in the industry strategically addressing issues such as labour standards and working conditions, and the integration of climate and other environmental standards within loan agreements has room to improve,” said the report.
Only a limited number of commercial banks and capital markets companies demonstrate comprehensive and adequate management of the environmental, social and governance risks they face. Loan portfolio disclosure is frequently low and the resulting lack of transparency makes it more challenging to understand the climate mitigation efforts in companies’ asset exposure while Scope 3 measurements are frequently missing according to ISS ESG.
“While the industry’s disclosure of sustainable finance (investment in renewable energy projects, green bonds, microfinance, affordable housing projects, and so on) tends to be strong, most companies demonstrate poor disclosures across the bulk of their business,” added the report. “Transparent disclosure drives companies to enhance their investment criteria, encourage impact investing, and strategically shift towards a low carbon and sustainable product portfolio.”
ISS ESG highlighted that the ratings are important as commercial banks and capital markets companies have a key role to play in channeling capital to green activities, especially as regulatory frameworks such as the EU Taxonomy, the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive develop.
The report concluded: “Banks are the gatekeepers of money and are finding that supporting sustainable ventures is good for business and good for the risk profile of their credit portfolio.”
©Markets Media Europe 2022
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