Many financial services companies mobilize for ESG reporting

Management responsibility for ESG disclosure

A number of respondents indicate ESG disclosure management is shared across two or more business functions. However, nearly half (48%) say the chief financial officer, or CFO, has management responsibility for ESG disclosure within their organization (figure 1). This reflects the need for an accountable senior executive to assess emerging regulatory requirements and understand the impacts to the business. Leadership also helps to align stakeholders within the company to disclose accurate, material ESG information in a timely manner.

Figure 1. ESG disclosure management responsibility in the financial services industry

Financial services is the only one among five industries analyzed in our survey (the others being consumer products; life sciences and health care; oil and gas; and technology, media and telecommunications) in which the CFO is more likely than the chief sustainability officer to have management responsibility for ESG disclosure. This may be due to the nature of the business, which may have increased risk management practices due to the heavily regulated industry.

Industry CFOs may share the data collection and reporting responsibility with the chief sustainability officer, chief strategy officer, and other executives. This is consistent with the typically multidisciplinary aspect of ESG reporting, which uses information across a range of functional areas within an organization. 

Case in point, a cross-functional ESG council or working group is already in place at 44% of the financial services organizations in our survey, with another 51% of respondents saying they’re in the process of establishing one.

Board-level oversight of ESG

Among the financial services executives in our survey, 49% say their board of directors has an ESG or sustainability committee—an indication of ESG’s importance in the industry (figure 2). 

Figure 2. ESG board-level oversight in the financial services industry

That said, ESG is a broad topic that typically spans multiple items on the board’s agenda. For example, the governance component of ESG generally falls under the purview of the nominating and governance committees, ESG metrics for executive compensation typically sit with the compensation committee, and ESG disclosure reporting is usually overseen by the audit committee. These numbers mean that in some organizations, governance is likely shared across two or more board-level committees.

Preparation for future regulatory and disclosure requirements

Almost all the financial services executives in our survey indicate their company is taking steps to get ready for future regulatory and disclosure requirements. Ninety-four percent say they’re making extensive or limited preparations, and another 3% say they’re already prepared (figure 3).

Figure 3. Preparations for potential increased ESG regulatory or other disclosure requirements in the financial services industry

ESG disclosure standards

For now, many financial services firms use a variety of standards for their ESG disclosures (figure 4). Many respondents indicate they use frameworks from multiple standard-setters, likely for different reporting areas (e.g., Sustainability Accounting Standards Board for industry-specific information, Global Reporting Initiative for human capital information, and Task Force for Climate-related Financial Disclosures for climate information).

Figure 4. Reporting standards currently used for ESG disclosures in the financial services industry

ESG data challenges

Most (80%) of our respondents say their financial institutions are prepared to disclose details about their Scope 2 greenhouse gas (GHG) emissions. However, only half as many (40%) are prepared to disclose Scope 1 GHG emissions, and half of that (19%) say they’re prepared to disclose Scope 3 GHG emissions. It may be that Scope 1 GHG emissions aren’t as straightforward to measure for financial services as they are for certain other industries that make significant use of fuel inputs. 

Industry executives report several challenges with ESG data. The biggest one is quality. To encourage improvements to data quality, the Partnership for Carbon Accounting Financials offers a standardized framework that many financial institutions are using to measure the GHG emissions of their loans and investments.

Collectively, 66% of respondents cite availability, aggregation, and review as their main challenges when it comes to ESG data, and 34% indicate they don’t trust its accuracy or completeness (figure 5).

Figure 5. Greatest challenge with ESG data in the financial services industry

Secondary data is also a main concern. Financial institutions can ask data providers to get secondary information from organizations in the firm’s ecosystem, such as those they invest in or hire as service providers. But in the absence of an assurance or verification, it can be difficult for firms to gauge the accuracy of this type of information.

Investment in new technology and tools

Sustainability reporting typically needs the same rigor as financial reporting, and commercially available technology platforms can help by taking much of the manual work out of ESG data gathering and reporting. So, it’s no surprise that almost all financial services executives (95%) say they’re very likely or somewhat likely to invest in technology and tools to enable more timely and higher-quality disclosure in the near future (figure 6).

Figure 6. Likelihood of investing in new technology and tools in the financial services industry

But only 29% of industry respondents say they’re very likely to invest in new technology or tools to help with their disclosure, versus 47% for all surveyed executives across industries. The gap is notable because it takes time to decide on an ESG reporting technology strategy and firms are encouraged to outline a path forward to help avoid a potential costly scramble. 

Plan for obtaining assurance

Nearly all respondents say they plan to obtain assurance in the next reporting cycle. Close to half (48%) indicate their companies will seek assurance for the first time. Another 48% say they will continue to obtain assurance, although it’s unclear what level of assurance they’re getting today (figure 7).

Figure 7. Plans for obtaining assurance for the next reporting cycle in the financial services industry

Across all industries, 61% of respondents aim to continue to obtain assurance. This means the financial institutions in our survey are notably more likely than other companies to be new to the assurance process for ESG disclosure, an indication that the industry may have more work to do in maturing their ESG programs.

A journey to greater maturity and preparedness

A leading takeaway from our Sustainability action report is that when it comes to ESG disclosure, readiness is the watchword. The good news? Getting ready may not be as complex as it seems at first. Consider the following illustrative path to implementation:

Many of the financial services executives in our survey are optimistic about the outcome: 55% expect enhanced ESG reporting to reduce risk. The same share expects increased efficiencies and return on investment, while talent attraction and retention ties with enhanced stakeholder trust as the second-most common expected outcome (52%).

Whatever your ambitions—and wherever you happen to be along your ESG journey—our sustainability and transformation professionals can advise you as you accelerate your journey to integration maturity and disclosure preparedness. To learn more, please contact us.