Only 53% of banks will be ready for regulatory reporting in the next six months when new environmental, social and governance (ESG) rules are enforced, a new study claims.
The finding comes from a report from Avande, a Microsoft solutions provider, and Efma, a global non-profit organisation built by banks and insurers.
It also stated that 18% of banks are unclear as to what the requirements are and 29% of banks will not be ready for another year.
Other statistics include that 67% of banks will not hit net carbon zero operations until 2025, but 26% said they will be carbon neutral within the next 12-24 months. Only 15% of banks said they are carbon neutral.
Furthermore, 25% have a climate risk model ready, 34% plan to be in that position in six months, 42% will not be able to test the impact of climate scenarios for a year, and 12% will need to wait two years.
The biggest challenge banks have seen in climate risk analysis is data integration. The report found that 32% of banks are struggling with a lack of integration of climate risk data with their risk management framework.
Despite many not being ready, 70% of banks see their ESG work as having a positive impact on their reputation and credibility. The biggest benefit they see, with 50% of banks agreeing, is the balance sheet protection. Other benefits are attracting younger groups (44%) and better energy and waste management (34%).
Increasing ESG investment opportunities to attract more younger customers is a top priority for 42% of banks, followed by greater transparency on the transition to a low carbon footprint (36%), fuller disclosure and reporting (34%) and a greener product portfolio (32%).
Nic Merriman, European lead for financial services at Avanade said, “Clearly, some banks are struggling to get moving towards hitting their ESG goals. Whether it’s disclosure and reporting, having a climate risk model up and running or making hard choices about whether and where to discontinue client business, there is still plenty to do.
“Integrating climate data with risk management frameworks is a major concern. The good news is that there are technology solutions to support banks as they face increasing regulatory pressure and the need for improved data management.”
The Climate-related Financial Disclosures (TCFD) framework was created in 2016 and is a global standard for climate disclosures. Last year, the UK Financial Conduct Authority announced all publicly listed UK companies with a premium listing would need to ’comply with or explain’ the TCFD’s requirements by 2023.
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