Since 2009 financial crisis, banks became extremely scrutinized about what they do. How was it achieved? Easily. Extended Reporting and Supervision became the New Normal. As well as the hunt for data. Financial data.
In the era of sustainability this reporting requirement has been extended to non-financial information, which is today called sustainability data. One can somehow understand how banks can deal with multiple reporting requirements about financial data of their own clients. It’s their business to understand financial numbers, right? But carbon emissions of their own clients? Their reduction targets? Split of client business data into sustainable and unsustainable part? Judgement over what is and what is not sustainable? Data load grows exponentially.
Sustainability reporting started in EU in 2014 with non-binding guidelines of what to report. Now it becomes serious. There is an obligatory first step coming soon: Since January 2022 banks are obliged to report its own taxonomy alignment (check also the post Taxomize it!) like any other non-financial company over (currently) 500 people. With one difference, taxonomy alignment is calculated for every single client in its portfolio – irrespectively of whether a client has or does not have its own obligation to report it. So called Green Asset ratio.
And this is just one example. There is a tsunami of new reporting requirements coming on the banks and big corporates. So what will the banks do? For a while they can use estimates. But it does not take long and banks will require information from the clients. They cannot do it differently anyway – they are asked to do so by bank regulations. Irrespectively of whether the client must report it by law by himself or not.
Why do the regulators and policy makers put banks under such a pressure? Banks are seen as a tool to achieve EU strategic goals of ‘wanted’ green economic transformation. Banks have an access basically to all the companies – and via bank reporting requirements there is an indirect reach with reporting requirements to all the (primarily) corporate clients. Obligation to report creates awareness. Awareness translates to knowledge and possibly client transformation action. Banks are also an efficient transmission channel for the money – besides public green funds there is private banks’ ‘green’ money. And again – the more green loans and bonds the bank produces, the better for the reported figures (so called Green Asset ratio) …. and for the fulfillment of EU climate goals.
EU is indeed serious about green economic transformation and will use similar tools as in the case of financial crisis in 2009. Brutal Transparency.
We need to get prepared. It s coming. Will we all be in the end transparency victims or winners? What’s your view? 🙂