Disclosure of sustainable banks

In this week's blog, I would like to share with you some information about the Banking Sustainability Report.

With the deep involvement of the banking sector in achieving the sustainability goals, while banks may not directly impact society and the environment, their investment activities and products are important to the other industries or projects they serve. This requires sustainable banks to allocate resources to the right companies and minimize damage to society and the environment. Investors, stakeholders (regulatory bodies, governments, the public) are urging banks to disclose sustainability information, this is a kind of form of accountability. As traditional financial reporting no longer meets the needs of stakeholders, more and more companies are choosing to disclose this non-financial information. Usenko and Zenkina (2016) argue that financial performance in traditional financial reporting does not fully describe company's risks and performance and does not convey positive and negative information about company's impact on economic, environmental, social and governance (EESG) aspects, as well as environmental and social externalities. The bankruptcy scandals of large companies such as Enron can demonstrate that a company should also report information relevant to its sustainability performance. Following the financial crisis, banks have changed their approach to CSR and in particular CSR disclosure, becoming more aware of the potential reputational risks and brand image damage associated with these issues (Carè, 2018). Banks in some countries have been severely penalized for violating socio-economic and environmental guidelines. For example, in the United States, many banks have been penalized by the courts for environmental pollution by their customers, and the banks have ended up paying high fines (Thompson & Cowton, 2004).

GRI (Global Reporting Initiative)

The value of sustainable banking disclosure can be seen in sustainability reporting. GRI (Global Reporting Initiative) is the initiating organization for sustainability reporting. The first version of what was then the GRI Guidelines (G1) published in 2000, provides the first global framework for sustainability reporting. GRI went from offering suggestions to establishing the first worldwide sustainability reporting standards, the GRI Standards, in 2016. The Standards are still being updated and expanded, with new Topic Standards on Tax (2019) and Waste (2020) being introduced (GRI, 2022).

There is no specific disclosure checklist for banks, Weber (2017) concludes that there is a checklist to assess the quality of sustainability information disclosed by banks. It includes an explanation of the sustainability strategy (social and environmental strategy), sustainable banking products and services, a bank profile, and a certification by the board of directors on the implementation of sustainability.

Here are some of the benefits to banks of disclosing sustainable information

European Commission (2017) states that appropriate non-financial disclosure is an essential element in achieving sustainable finance, and banks can assess the social and environmental impact of the projects they finance and their role in supporting the real economy of a city, region or country as a form of material information. Furthermore, there is a close relationship between a good reputation and good disclosure. By surveying the relationship between environmental performance, reputation and financial performance. Miles and Covin (2000) said that being a good environmental manager can provide a reputational advantage to a company, which in turn can improve financial performance. Through a study of commercial banks in Indonesia, sustainable bank disclosure has a positive impact on bank efficiency (Kosasih et al., 2021).

Thank you for reading!🥰

References

1. Carè, R. (2018). Emerging Practices in Sustainable Banking. Sustainable Banking, pp.65–92.

2. European Commission. (2017). Guidelines on non-financial reporting (methodol-ogy for reporting non-financial information). Communication from the com-mission 2017/C 215/01. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52017XC0705(01)&from=EN

3. GRI (2022). Mission & history. [online] www.globalreporting.org. Available at: https://www.globalreporting.org/about-gri/mission-history/.

4. Kosasih, W.D., Rahman, A.F. and Prastiwi, A. (2021). Does Sustainable Banking Disclosure Affect Bank Efficiency? Evidence from Indonesia. Journal of Accounting and Investment, 22(2), pp.375–391.

5. Miles, M.P. and Covin, J.G. (2000). Environmental Marketing: A Source of Reputational, Competitive, and Financial Advantage. Journal of Business Ethics, 23(3), pp.299–311.

6. Thompson, P., & Cowton, C. J. (2004). Bringing the environment into bank lending: Implications for environmental reporting. British Accounting Review, 36(2): 197–218.

7. Usenko, L. and Zenkina, I. (2016). Modern Trends and Issues of Corporate Reporting Data Disclosure on Organization Activities. Mediterranean Journal of Social Sciences, 7(3), pp.212–220.