Financial services industry improve ESG disclosures and performance

Wealth managers show the greatest progress in ESG efforts.

Sustainability efforts amongst financial services organisations are continuing to grow, with an increase in both ESG disclosures and performance on underlying ESG measures, according to EY’s research. The average disclosure rate rose from 79% in 2020 to 82% in 2021, whilst the average ESG score increased from 4.80 to 4.93.

The leading third of firms from EY’s 2018 index are still setting the pace in 2021, with pressure from regulators and investors driving their improved ESG performance and disclosures. Wealth managers, which had the lowest disclosure rate in 2018 at 72%, have shown the most improvement, increasing to 83% in 2021. Banks and insurers have also improved their ESG disclosures but at a slower pace.

Whilst progress is being made, the gap between ESG leaders and laggards remains significant, indicating that there is still much room for improvement amongst all entities. All organisations need to improve on the "reporting" and "performance on sustainability" parameters.

To continue making progress, organisations will need to take a more holistic approach to ESG, implementing new strategies and policies and engaging with stakeholders to ensure alignment on sustainability goals, EY said.

Collaboration with other organisations and industry groups can also help drive progress and promote best practices. By increasing transparency and accountability, companies can build trust and credibility with stakeholders, ultimately improving their overall performance and contributing to a more sustainable future.

Overall, the data shows that the financial services industry is committed to sustainability and continues to make progress in this area, despite the challenges posed by the pandemic.

FIs lag in emissions reduction

Financial institutions have made slow progress in reducing emissions, according to data from the Partnership for Carbon Accounting Financials (PCAF). Only one-third of the 226 banks that have signed up for the PCAF disclose their emissions data on the PCAF site. Additionally, only one-third of firms disclose their scope 1-3 emissions data. 40% of those that consistently report emissions data have failed to reduce emissions from 2018 to 2021.

The banks in the index reported an average emission of 1.18 tonnes per $1m in assets in 2021, up from 0.85 tonnes in 2018. Insurers reported an average emission of 6.49 tonnes per $1m in gross written premiums in 2021, nearly doubling the 3.32 tonnes reported in 2018. Wealth and asset managers' emissions remained stable at 0.09 tonnes per $1m in assets under management from 2018 to 2021.

Reducing emissions will require increased climate-aligned investments and financial inflows, as well as a shift away from investing in emissions-intensive projects. As more financial services institutions disclose the greenhouse gas emissions associated with their loans and investments, financed emissions intensity is likely to increase.