Climate-related risks and their business impacts are the focus of attention for annual report readers like never before. However, if we look at the annual reports of global banks, their progress in disclosing climate-related matters in annual reports has slowed down in 2021.

We note that heightened regulation generally results in enhanced disclosures in the annual reports. Although all the banks provide disclosures of climate-related matters in their 2021 annual reports, the nature and extent of information disclosed varies significantly across the banks in our analysis and appears to be driven by whether there is regulation (or regulatory guidance) in a country or region.

The formation of the International Sustainability Standards Board (ISSB) marks a critical milestone in the journey towards a consistent global baseline of investor-relevant sustainability reporting, including climate. In anticipation of the new IFRS® Sustainability Disclosure Standards (the Standards) from the ISSB, some banks may have taken a wait-and-see approach until they have more clarity about the new Standards.


Banks’ detailed and comparable climate-related reporting creates transparency on how banks are exposed to climate risk via their financing and how banks are working with their clients on the transition to a low-carbon society, in alignment with local and global commitments.


Veronica Palmgren
Director
Sustainable Finance & Corporate Sustainability
KPMG Finland


Banks continue to focus on risk management

Banks are aware of climate-related risks. 77 per cent of the banks disclose that they are integrating climate-related risks into their wider risk management framework and that they are starting to follow the more ‘business as usual’ processes of identification, assessment, management and reporting of climate-related risk. Many of the banks also acknowledge that climate-related risk is an overarching risk that impacts their other risks. Their most commonly impacted other risks are credit risk, reputational risk, operational risk and compliance risk.

37 per cent of the banks in our analysis mention ‘climate’ in the notes to the financial statements. Generally, the nature and extent of information disclosed by these banks is currently minimal – e.g. disclosing in a single statement that climate-related impacts have been considered in the cash flow projections used for goodwill impairment assessments.

Financial risk management (focusing on credit risk) and accounting policies are the two most common notes where climate-related impacts are mentioned. For banks, the logical place to see discussion of climate-related risks in the financial statements would be in the notes related to measuring expected credit losses (ECLs). Climate-related risks may impact the expected cash flows to be received and, therefore, the banks’ exposure to credit losses.


It is expected that banks continue to work towards more robust climate change related practices across the three defense lines and that climate change becomes a matter closely overseen by the board with all the banks.


Riikka Sievänen, PhD
Director
Sustainable Finance & Corporate Sustainability
KPMG Finland


The key findings:

  • Banks continue to focus on risk management.

  • It’s all about the front part of an annual report – disclosures in the financial statements are less common.

  • Metrics and targets remain vague in the annual reports. Banks have made significant commitments to sustainable finance, but without quantitative information on metrics such as financed emissions it is difficult for users to track their progress.

Read the full report here:

We performed benchmarking of the climate-related disclosures included in the 2021 annual reports of 35 major global banks. We have selected banks across the UK and Europe, Australia, Canada, Asia, and the US.