Sustainability — with its focus on environmental, social, and governance (ESG) principles — is beginning to dominate political and business agendas worldwide. Even before COVID-19, initiatives such as the Paris Agreement or the European Green Deal aimed to mitigate climate change. The pandemic has exposed additional vulnerabilities in our economies, health systems, and societies. But it has also brought a sense of common purpose and unity in the face of sacrifice.
As allocators and stewards of capital and underwriters of risk, financial services and insurance firms have a large role to play in the transition to a more sustainable world that customers and regulators demand. To help financial services professionals understand which practices and initiatives are at the forefront of the industry, Forrester reviewed more than 40 ESG reports from top financial services players in Asia Pacific, Europe, and North America. Forrester clients can read the result of our analysis here.
ESG reports are a fascinating read. While ESG disclosure is a regulatory requirement in some geographies like the EU (Non-Financial Reporting Directive), it’s also becoming a global best practice. Frameworks offered by GRI, SASB, or TCFD provide a good starting point and recommend similar areas of disclosure: strategy, activities aligned with sustainability goals, governance, risk identification and management, and metrics. Leading financial services firms have increased the number of reports they are producing to satisfy investors and other stakeholders. In 2019, Royal Bank of Canada released for the first time an ESG performance report, a SASB Index, and a TCFD report.
Still, without any standardization, ESG reports vary widely. Regulatory requirements (and political pressure) vary across geographies, and financial services companies differ in their perception of sustainability — some see it as a risk, others as an opportunity — and the actions they take in this area. ING has tried to assess and mitigate the risks of climate change with new tools such as scenario analysis, climate risk stress testing, and a transition risk heatmap. Many organizations will start with a materiality matrix, where internal and external stakeholders will suggest those issues they consider most material to that particular company. Brand also plays a role, with Forrester developing a framework to help companies decide how much to bring values into their business models — and how intensely to depict those values to consumers and employees.
But our analysis did reveal some trends across ESG reports:
- Environmental issues dominate financial firms’ activities and reports driven by regulatory requirements such as climate change stress tests of banks and insurers.
- Social issues are gaining significance on the back of the #MeToo and Black Lives Matter movements, also driven by the emphasis of community support during the pandemic.
- Client and partner management is an area of improvement as financial services firms start building ESG into their policies.
Please read the full report here, and also be on the lookout for another upcoming Forrester report which will offer a framework for financial services firms starting on their ESG journey.