ESG reporting challenges in the banking and insurance industry

January 17, 2023

The financial services sector is a highly regulated sector for ESG due to their extensive reach into the economic value chain. Ratings agencies score companies on ESG performance indicators, which influence investment decision-making, and regulators are watching financiers and underwriters for their high exposure to a multitude of sustainability-related risks.

Portfolio risk exposure

The main reporting challenge for banks and insurance companies is the breadth of clients and customers that they engage with, each presenting different ESG risks that vary by sector and industry. Credit risk isn’t limited to purely business or financial management anymore - the financial damage to a client from an extreme weather event or from a social petition could wreck the performance of an otherwise healthy portfolio. And that’s not considering the reputational and regulatory damage from such an event, which could be held as neglect or failure to conduct ESG due diligence and to fulfil risk management obligations. Environmental, social, and governance indicators are essential to painting an accurate picture of portfolio exposure for all products and services. Investors, banks, and insurance are increasingly looking into details of all three categories for decision making, and overall seeking more detail and transparency from stakeholders.  

Quality investor-level data

Reporting on the vast breadth of ESG data in banking and insurance inevitably involves the extraction of large volumes of data from external, both public and private sources. The approach to standardizing aggregate data, not to mention verifying it, was to this day, often manual in nature, relying on spreadsheet management by an employee. As a result, disclosures are often incomplete, unsubstantiated, or inaccurate at times. ESG data needs to be more efficiently and accurately identified, extracted, and matched in order to respond to both reporting and investor requests.

What can companies do?

The investment community has pushed for standardization of sustainability information in the financial services sector by creating their own benchmarks and standards. Many frameworks including TCFD, CDP, GRESB, GRI, SASB, and the European Taxonomy concern all industries. These are the foundation of ESG reporting and serve as information complements for ratings for indicators like S&P Global, Dow Jones Sustainability Index, and FTSE4Good. Rating agencies have their own set of sustainability criteria that they use to assess the ESG performance of companies. Crossing all these data elements can inform your selection of indicators and disclosure metrics.

In the banking and insurance industry, 74% of surveyed respondents considered that producing investor-grade information is a priority of their ESG reporting. Technologies for the latter are an important tool in the reporting architecture to ensure the quality of disclosures meets investor requirements.

How we help you

  • We help you determine the ESG information to report on your industry in order to meet reporting requirements/standards and to effectively tell your sustainability story.
  • We simplify the collection of ESG data in your organization by offering one central platform to automate data collection with integrations into ERP, HRM, CRM, EMS etc.
  • We facilitate data collection from your vendors, clients, and external third parties, ensuring relevant information arrives in a complete and accurate manner. We will handle the burden of information exchange with multiple stakeholders.
  • We advise you on ESG focus areas in portfolio risk assessments.

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