Progress on climate-related disclosures in annual reports by some of the world’s leading banks slowed down in 2021, according to a new report from the KPMG International Standards Group.
The annual benchmarking analysis, now in its second year, looked at climate-related disclosures in the most recent annual reports of 35 major banks, based in territories around the world – offering insight to investors, regulators, preparers and other interested key stakeholders.
Despite increasing consensus on the need for enhanced climate impact transparency, the findings reveal that, while many institutions are on a clear journey towards greater voluntary disclosure, with 100 percent of banks analysed providing some form of climate-related disclosures, more detailed progress in annual reports has slowed and varies significantly from territory to territory.
Banks based in jurisdictions that have already implemented heightened regulation on climate-related disclosures have made the biggest strides with more enhanced disclosures – with UK banks ahead of the pack. Meanwhile, some jurisdictions where the base level of disclosure in annual reports was historically lower are catching up with those that have more advanced disclosures.
The formation of the International Sustainability Standards Board (ISSBTM) marks a critical milestone in the journey towards a consistent global baseline of investor-relevant sustainability reporting – including on climate related risks. In anticipation of new disclosure standards from the ISSB, there is some anecdotal evidence from KPMG’s analysis that some banks may have taken a ‘wait-and-see’ approach until they have more clarity about the new standards.
Jeyapriya Partiban, Partner and Head of Advisory at KPMG in Bahrain, said:
“The report findings revealed that many banks worldwide still do not provide climate-related disclosures in their financial statements and, users of annual reports are increasingly looking for information about the impact from climate-related risks and opportunities as they want to understand how these impacts filter through to their financial statements and influence their bottom-line. However, this trend will eventually change as climate reporting will soon be a part of the mandatory reporting framework. In 2021, the TCFD’s (The Task Force on Climate-Related Financial Disclosures) recommendations became mandatory for UK premium listed banks on a ‘comply or explain’ basis. Regulators in Australia and certain regulators in Europe have issued guidance on climate-related disclosures and have emphasised the importance of considering climate-related matters in their annual reports. In Bahrain, the Central Bank of Bahrain (CBB) published a circular announcing the intent and commitment towards addressing social and climate-related risks within the financial services sector. To begin with, licensees need to understand how climate-related risks an impact on can have the organization and show evidence on how they are considering climate-related risks in terms of monitoring, measuring and managing their risks. The future of this would typically lead towards building a formal framework in terms of risk protocols, compliance requirements and disclosures. Therefore, banks need to start applying an ESG lens on their strategy, business plans, policies and processes, internal culture and their overall organizational activities to ensure they can maintain and manage ongoing compliance.”
Despite slower progress, KPMG’s analysis highlights that banks are aware of the relevant climate-related risks, particularly when it comes to describing the risks they have identified and how they have set up their governance structures to manage these risks. Given that banks’ traditional focus on risk management, it doesn’t come as much of a surprise that most of those analyzed provide detailed disclosure in this area.
Seventy seven percent of the banks surveyed disclose that they are integrating ‘climate-related risks’ into their wider risk management framework and that they are starting to follow the more ‘business as usual’ processes of identification, assessment, management and reporting of climate-related risks.
Many of the banks also acknowledge that ‘climate-related risk’ is an overarching risk that has an influence on their other risks. Their most impacted other risks are credit risk, reputational risk, compliance risk and operational risk. However, while the ‘credit risk’ disclosures are typically detailed in annual reports, very few banks are connecting those disclosures with the associated impacts in their financial statements.
The benchmarking analysis report can be viewed at: