- IIDMA warns that banks’ Non-Financial Information Statements do not contain the information they are required to report by law.
- This data is essential in identifying which players in the banking sector support a real decarbonization of the economy, in line the objectives of the Paris Agreement.
- Between 2016 and 2020, the top 60 banks across the globe have allocated $3.8 trillion to fossil fuel-linked companies.
Since 2018, Spanish banks have been required by the Commercial Code to include significant data on the impact of their business activity on the environment in their Statements of Non-Financial Information (EINF). The reality is far from this scenario, according to the latest report by the International Institute for Law and the Environment (IIDMA) which analyzes the degree of compliance of Bankia, Bankinter, BBVA, CaixaBank, Sabadell and Santander in 2020.
The study entitled, Spanish Banks and the Reporting of Environmental Issues: Analysis of Non-Financial Information Statements 2020, aims to contribute to the transparency of Spanish banks with respect to the environmental footprint of their financial activity. Although it is not possible to establish a ranking, due to the heterogeneity of the data provided by each bank, it does highlight the progress made by Bankinter, BBVA, and Banco Santander in the publication of information regarding their participation in carbon-intensive sectors.
However, there is a generalized omission of other essential data, such as greenhouse gas (GHG) emissions attributed to their financial investments, or the impact of its activity on biodiversity and the environment.
One of the main objectives behind this obligatory reporting is to make investors, financial companies, and the general public aware of the impacts banks’ have on the climate. In other words, the company faces a risk of a decrease in value for not adapting to measures to decarbonize the economy, as set out in various legally binding international treaties such as the Paris Agreement.
According to Quintin Aubineau, IIDMA lawyer and co-author of the report, “Banks are particularly exposed to climate transition risk due to the accumulation of assets in carbon-intensive sectors, which could become stranded assets.
Specifically, the report refers to a study by RAN and BankTrack, which reveals that between 2016 and 2020, the top 60 banks around the globe allocated $3.8 trillion to fossil fuel-linked companies.
The disclosure of relevant and comparable data is essential to identify which players in the banking sector support a real decarbonization of the economy. However, the report notes that much of the published data focuses on the environmental footprint of their own buildings, an impact that is marginal compared to the GHG emissions that may be produced by the companies they finance.
Likewise, IIDMA shows that there is extensive information on the sustainable finance projects that banks support, but the lack of other data prevents a comparison of the percentage that these projects represent within the overall portfolios of Spanish banks.
Towards a stronger European legal framework
The financial sector has a key role to play in reducing greenhouse gas emissions and protecting the environment. This is stated by the European Commission (EC) in its sustainable finance strategy to tackle climate change.
To promote more transparent reporting, last April the EC proposed a revision of the European legal framework for corporate disclosure of environmental and climate impact information.
The new legal framework is expected to come into force in 2024 however, IIDMA argues that the EC guidelines published in 2019 on climate disclosure already includes a very comprehensive guide. “It is essential that existing tools are being implemented. If banks want to improve their reporting, they already have a precise recommendation for disclosing relevant environmental information,” says Quintin Aubineau.
IIDMA concludes in its report that the current trend in environmental transparency in banking follows the same path as in the last two years.
To reverse this trend, the Institute has issued a series of recommendations, including the disclosure of relevant and comparable key indicators on the GHG emissions of their financial products, the exposure of their portfolios to carbon-intensive sectors, and the impact of their activity on biodiversity and the environment.