IIDMA warns that major Spanish banks continue to omit relevant information on the environmental impact of their financial operations

• IIDMA reports that banks’ Non-Financial Information Statements do not contain the information required by law, for the third consecutive year.
  
  
• This data is essential to identify which actors in the banking sector support a real decarbonisation of the economy, in line with the Paris Agreement goals.
  
  
• The absence of detailed information prevents investors, financial firms and customers from knowing the climate risk exposure of each bank.

Since 2018, Spanish banks are required by the Commercial Code to include, in their Non-Financial Information Statements, significant data on the impact of their activity on the environment. However, a large amount of information is still omitted, according to the latest report by the International Institute for Law and the Environment (IIDMA), which analyses the degree of compliance of Bankinter, BBVA, CaixaBank, Sabadell and Santander in 2021.

The study, entitled Spanish Banks and the Reporting of Environmental Issues: Analysis of Non-Financial Information Statements 2021, points out that, despite the fact that banks have provided more environmental information than in previous years, the absence of key indicators continues to prevent an understanding of the real impact of their financial activity.

IIDMA highlights the widespread omission of some key data, such as greenhouse gas emissions attributable to their financial products, or the impact of their activity on biodiversity and the environment. The latter is required not only by the 2018 law on the Commercial Code, but also by the Equator Principles on managing the environmental impacts of projects financed by banks, a voluntary international initiative to which all the institutions analysed have adhered.

On the other hand, the lack of more detailed information prevents investors, financial companies and the general public from having a clear understanding of each bank’s exposure to climate risks. In other words, the risk of devaluation of their assets for not adapting to the measures to decarbonise the economy, stipulated by various international treaties, such as the Paris Agreement.

Specifically, banks are highly exposed to climate transition risk due to the accumulation of assets in carbon-intensive sectors. In this regard, the report refers to the study “Fossil Fuel Finance Report 2022” by RAN and BankTrack, which reveals that, between 2016 and 2021, the top 60 banks globally allocated $4.6 trillion to companies linked to fossil fuels, of which $742 billion was invested in 2021.

“The disclosure of relevant and comparable data is essential to identify which actors in the banking sector support a real decarbonisation of the economy,” says Quentin Aubineau, environmental lawyer at IIDMA. However, the report notes that much of the data published in banks’ NFISs focuses on the environmental footprint of their own offices, whose impact is completely marginal compared to the GHG emissions that may be produced by the companies they finance.

IIDMA also shows that there is extensive information on the sustainable finance projects that banks support, but the lack of other data makes it impossible to compare the percentage that these projects represent within Spanish banks’ portfolios as a whole.

Towards a more demanding European legal framework

The shortcomings of large companies’ NFISs has also been identified by the European Commission and the National Securities Market Commission (CNMV). In fact, a new European directive on corporate sustainability reporting that incorporates much more transparency requirements is already in the pipeline and is scheduled to come into force in 2024.

However, IIDMA argues that the EC guidelines published in 2019 on climate disclosures already represent a very comprehensive guide. “A period of adaptation to the regulation is understood, but after four years of its entry into force, bank NFISs do not comply with all the requirements foreseen in the current legislation,” says Ana Barreira, lawyer and founding director of IIDMA.

IIDMA recommendations

IIDMA concludes its report with a series of recommendations, including the use of key, relevant and comparable indicators, the disclosure of data on the GHG emissions of their financial products and the exposure of their portfolios to carbon-intensive sectors, and the measurement of the impact of their activity on biodiversity and the environment.