How transparent are European Banks? Highlights from the ECB’s Assessment of European Banks’ ESG Disclosures / Sustainability

The evaluation emphasises a necessity for improved forward-looking disclosures, detailed govt descriptions, and enhanced dealing with of social dangers.

In a groundbreaking transfer, 107 banks disclosed detailed ESG info underneath Pillar 3, revealing dangers and mitigations for the primary time. The ECB’s analysis uncovered challenges, together with information high quality points, format errors, and completeness gaps. Notably, 27 banks corrected info post-cutoff, but 24 nonetheless have information high quality points. The evaluation emphasises a necessity for improved forward-looking disclosures, detailed govt descriptions, and enhanced dealing with of social dangers. Regardless of challenges, 25 % of banks corrected info post-review, highlighting ongoing efforts towards ESG transparency.

On 31 December 2022, banks disclosed complete info on bodily and transitory dangers and mitigating actions inside the EBA ITS on ESG disclosures reporting templates on environmental, social and governmental dangers underneath Pillar 3 for the primary time. The ECB has collected and structured the data from 107 banks on this subject and revealed the primary outcomes and chosen.

Nevertheless, the necessities underneath Artwork. 449a CRR weren’t the one Pillar 3 necessities which had been analysed by the ECB. The capital ratio, leverage ratio and liquidity ratios had been additionally analysed. It was discovered that 13 banks have corrected a number of the key ratios and 22 banks have corrected the data on the credit score threat template after the primary disclosure of the report. One of many errors was that the LCR was not revealed as a 12-month common however as a time limit worth within the Key Metrics template. Moreover, banks have modified the order of the row within the EU CQ5 template.

One other discovering of the ECB was that 27 banks corrected info inside the ESG threat quantitative templates throughout the closing date from the reconciliation train.

After the closing date some information high quality points nonetheless remained for a complete of 24 banks for findings within the ESG threat quantitative templates.

With reference to ESG dangers, banks disclosed each qualitative and quantitative info. When it comes to quantitative info, the ECB’s evaluation is based totally on templates 1, 2, 4 and 5, which include info on vitality effectivity values for actual property collateral, exposures to the highest 20 carbon-intensive firms, exposures topic to bodily threat and exposures by sector together with info on Scope 1, 2, 3 emissions. Nevertheless, info on Scope 1, 2, 3 emissions shouldn’t have to be disclosed till 30 June 2024.

The granularity of the information was significantly famous within the qualitative disclosures. The next factors had been emphasised:

• A necessity for enchancment within the disclosure of forward-looking info, e.g., on plans for enterprise fashions, technique, and targets within the medium and long run.
• A necessity for extra detailed descriptions of the position of Government Board members within the allocation of sure duties and duties.
• A requirement to boost the data on social dangers. Extra info must be added on how inside capability is constructed to handle these dangers, how social dangers are built-in into inside reporting frameworks and which metrics are used to find out social dangers within the remuneration coverage.
• A necessity for an enchancment within the processes for figuring out, assessing and monitoring ESG-sensitive actions and exposures. Specifically, the transmission channels must be coated and a hyperlink to present threat sorts must be established.
• An absence of high quality of disclosed info on inside tips and scoring by stress checks, situation analyses and instruments for assessing ESG dangers on capital and liquidity.

When it comes to quantitative disclosures, low information high quality and a distinction within the revealed values are significantly noticeable. This limits an efficient comparability of the templates of various banks. Listed here are some examples talked about by the EBA:

Format errors in subject contents: In Template 2 some banks mixed-up the models within the columns o (€) and p (%), leading to an incorrect disclosure and a format error.

Completeness: Some banks omitted to report all rows of the templates or didn’t report sure templates in any respect.

Consistency: Some sums of breakdowns, the figures didn’t equal the overall sum. Some metrics and calculations weren’t appropriately understood, such because the weighted common maturity or the definition of geographical areas. This led to variations in information amongst banks and information granularity.

Moreover, the EBA has recognized that because of the usage of completely different information suppliers for figuring out the High-20 Polluters, a direct comparability of this information will not be attainable. Given the absence of tips mandating the usage of an information supplier specified by the EBA, this discrepancy will persist for the upcoming reporting dates.

General, 25 % of the banks needed to appropriate their revealed info within the quantitative templates following the supervisory evaluation. Even after the reconciliation train, there are nonetheless issues with 22 % of the financial institution’s disclosures (of which information high quality issues and formatting issues).

Beneath are some key information extracted from the disclosed information as disclosed by banks for the person templates for Pillar 3 disclosure of ESG dangers.

Do you might have questions on ESG, Pillar III, the DPM or do you want help with the preparatory measures for implementing or validating the reporting varieties? Please be at liberty to contact us at any time.

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