On almost a daily basis the demand from investors for information on the climate impact of companies continues to grow. Whilst much of this demand is focused on non-financial institutions, it is increasingly clear that financial institutions and especially banks will also be expected to increase their reporting in this area. For banks it is no longer enough to report their own operational climate impact footprint but also the impact of their portfolios and clients whom they support with capital markets transactions.
As it becomes increasingly likely that there will be a new Biden administration, the current split in approach between Europe and the US on required reporting of climate impact as well as broader ESG reporting is likely to shrink. As noted by Gillian Tett in the Financial Times, there could be substantial shift in portfolio allocations (and hence share prices) “as more US investors are forced to contemplate the degree to which tough climate change regulation could reduce the value of assets like fossil fuel stocks.”
Asset managers are seeking to increase reporting in this area as well. Again the Financial Times reported that “(a)sset managers are not providing enough information about climate risks at the companies they invest in to enable clients to make informed choices, a regulatory task force has warned.” This article goes on further to note that there is an increasing disconnect between what companies (and banks) say they want to do to combat climate change and what details they are reporting. This disconnect is not likely to be sustainable for these companies leading to change in their reporting – most likely in the near future.
This pressure was highlighted by a recent demand from investors that “(m)ore than 30 of Europe’s largest companies (should) include climate change risks in their financial statements as concerns grow that corporate accounts no longer reflect the longer-term outlook.” As reported in the Financial Times, investors with more than USD 9 trillion under management have co-signed a letter to audit committee chairs requesting more information in this area. Of interest would be of course how many of the financial institutions who are these investors are doing the same for their own activities.
In any case the demand for greater and more consistent disclosure continues to grow. Any bank should be already starting, if not making concrete progress, on addressing their ESG and climate impact reporting shortcomings. The beat goes on for increased information and it will need to be provided.
