4 QUESTIONS FOR…
Brent D. Matthies, Head of ESG Framework and Coordination at Nordea, on its leading role in the C-ESG Data Workstream
We met Brent D. Matthies, Head of ESG Framework and Coordination at Nordea, who guided us through the complexities of ESG risk disclosures. Serving as the chair of the C-ESG Risk Roundtable Data Workstream, Brent shared some insight into the Data Workstream’s recently issued report which identifies commonly applied practices for addressing data and methodological uncertainties in banks’ ESG risk disclosures under Pillar 3 (P3). In the interview, he shed light on some of the challenges faced by banks in meeting disclosure timelines and the crucial role transparency plays when navigating uncertainties.
- Brent, you are chairing the banking industry Data Workstream that recently issued its report looking at ESG risk disclosures of banks under P3. If you could briefly explain what is required from banks and how this fits with the disclosures under the Corporate Sustainability Reporting Directive (CSRD) and the Taxonomy Article 8 Delegated Act?
The report presents unified perspectives from a select group of banks, focusing on the current status, key areas of uncertainty, and potential risk-mitigation strategies related to four key metrics outlined in their Pillar 3 disclosures. The included targeted suggestions aim to support improvements in disclosure transparency. While these suggestions may find relevance in the context of the CSRD or Taxonomy reporting, they were specifically formulated within the framework context of the Pillar 3 scope. It is important to note that banks are not required to take any specific actions on the back of our report, but we hope that the industry-led report would provide insights and encouragement for practitioners seeking to improve the way banks might disclose.
- You have been focusing on four particular metrics: financed emission, physical hazard exposures, Green Asset Ratio (GAR) and top 20 carbon-intensive firms. Why these metrics and what were the key findings?
The scope of the Data Workstream was collaboratively determined by participating banks, with the selection of these four metrics from the Pillar 3 scope based on their associated level of uncertainties in data and methodologies. Given that three out of four chosen metrics are required to be disclosed by the end of 2023, the timely importance to increase understanding regarding the selected datapoints was also considered. The findings of the workstream reveal that, despite the requirement for banks to disclose all relevant metrics in scope by June 2024, substantial challenges exist for delivering on most of them. Within the report, these challenges are presented as stemming from either data or methodological uncertainties. As banks seek to quantify their respective exposures for each metric under current uncertainties, challenges are exacerbated at the bank level due to a limited availability of information on industry-wide data or methodological choices. This report goes some distance to provide insights into these challenges, while not seeking to be comprehensive nor definitive in its coverage.
- Comparability is an issue – do we need more guidance, more standardization or more transparency? What are the main recommendations in the report?
In light of the report’s findings and observations, the aspect of comparability emerges as an area requiring consideration. The lack of data and methodological transparency concerning ESG-related metrics currently results in the utilization of low-quality data and fragmented methodological guidance, encompassing a mix of voluntary and regulatory requirements, thereby impeding comparability. To alleviate these associated uncertainties, there is a clear need for enhanced transparency and progress in both data and methods. However, the achievement of progress on the latter will take time and, in the interim, transparency enhancements are seen as forms of potential mitigation. Further, it is suggested that such enhancements might yield more beneficial outcomes than standardization, as conformity in assessing the risk landscape may not necessarily contribute to more prudent management of systemic risk within and across the European banking industry. The results of the workstream are presented as targeted suggestions, aimed at addressing either data or methodological uncertainties through increased transparency. It is crucial to note that these suggestions are not framed as ‘good practice’, but rather as approaches that offer tangible benefits for banks navigating common challenges in a dynamic landscape.
- Can we expect improvements as data becomes more available? Will the CSRD cover the data needs or where can banks expect to source the information they need for P3 reporting?
While the availability of data is very important for banks, it represents just one facet in the broader effort to improve disclosure quality or comparability. Participating banks share the same opinion that further convergence in practices will require clarifications in guidance, particularly on specific data-related topics. The emphasis here is on the significance, of clear and well-structured methodological guidance. As such guidance is still being developed, the comparability of disclosures is likely set to increase in the future. Although additional improvements in data availability under the CSRD will definitely contribute to this objective, it is essential not to perceive them as a panacea. Banks will still need to integrate such information to inform their own risk assessments in alignment with their business models, thereby creating scope for continued methodological refinement.
For more information:
Alexia Femia, Financing Sustainable Growth Adviser, firstname.lastname@example.org