The world of ESG reporting is changing, and banks need to change with it.
Half of the banks worldwide are still lagging when it comes to meeting ESG goals. That’s according to a recent study by Avanade and the European Financial Management Association (EFMA).
The biggest challenge facing banks as they try to get on board with this shift? Data management.
The pressure on banks to manage their ESG data is increasing.
Only half (52 per cent) of banks will be ready for ESG reporting in the next six months. Over two-thirds (68 per cent) will need to make material changes to technology systems in order to meet regulatory demands.
This also shows that most banks lack clear processes for managing ESG data across their business units or regions—and instead rely on ad hoc processes that are often inefficient and ineffective.
The majority of banks (70%) see their ESG work as having a positive impact on their market reputation and credibility
ESG reporting is an important part of a bank’s reputation. It gives investors and stakeholders the information they need to understand how a company operates and makes decisions, helping them assess sustainability along with performance over time.
However, this can be tricky when dealing with such a broad range of factors that have an impact on businesses.
Poor Data Management Impacting Banks’ ESG Goals
Avanade and EFMA Survey
Highlights
- Only half of the banks (53%) will be ready for regulatory reporting in the next six months, whereas almost 1 in 5 (18%) are still unclear as to what the requirements are and almost one-third (29%) will not be ready for at least another year.
- Over half of banks (57%) admit they will not hit net carbon zero operations until 2025. Only 15% stated they had already achieved this position, while just over a quarter (26%) said they will be carbon neutral in the next 12-24 months.
- Only 1 in 4 have a climate risk model ready now. A third (34%) plan to be in that position in six months. The rest (42%) will not be able to test the impact of various climate scenarios for at least a year, with 12% having to wait two years.
- Data integration is the biggest challenge to climate risk analysis – almost a third of banks (32%) are struggling with the lack of integration of climate risk data with their risk management framework.
Related article: The Top 10 Data and Analytics Trends For 2022
Biggest Challenge for Banks in Australia
In order to meet regulatory demands while remaining competitive in the market, banks need to find ways to integrate ESG into their strategy as quickly as possible—without having any negative effects on their bottom line or ability to serve customers.
In addition, many banks are already struggling with legacy systems that can’t cope with modern business requirements and will not be able to meet these new standards easily or quickly.
This calls for accelerated digital transformation.
An Avanade executive said “The biggest challenge facing Australian banks is how to service their clients while keeping up with the rate of regulatory changes.
A reasonable investment of time, effort, and capacity is needed”.
The ESG presents a significant opportunity for Australian banks to leverage technology to capture data more effectively and be ESG compliant. This could help in generating better reporting, scenario planning and risk management.
Australian banks have a major opportunity to use technology to acquire data more effectively. This could lead to improved reporting, scenario planning, and risk management.
