Investment entities need to improve disclosure practices: CSA

Efforts to provide investors with disclosure about the risks posed by climate change are improving, but big banks aren’t doing enough to detail the expected financial impacts, says Moody’s Investors Service.

In a new report, the rating agency said that while most large banks are committed to climate-related risk disclosure, just 32% are providing any disclosure about how global warming could affect their financial performance.

The conclusion follows a review of the disclosures from 100 of the world’s biggest banks, with a combined US$47 trillion in assets.

It found that 86% have committed to climate risk disclosure but that financial reporting of these risks is still limited.

“Most banks’ climate risk management is at an early stage,” said Olivier Panis, vice president and senior credit officer at Moody’s, in a statement.

He noted that banks are making disclosures about their own carbon emissions but are providing “very limited” information on financed emissions.

Additionally, the report noted that 79% of the banks it reviewed have implemented policies to exclude financing companies with high climate transition risks, but that less than a third of them “have adopted climate-risk considerations at all stages of the credit risk process or provide a description of their climate risk assessment and monitoring methodologies.”

“Testing the resilience of banks against climate change scenarios is more complex than implementing financing exclusion policies,” said Panis.

It also noted that less than half of banks surveyed disclose the climate risk stress-testing methodology used in their loan books.

“We expect their climate risk disclosure to continue improving due to a push from regulators, particularly in Europe, and growing demand for sustainable finance worldwide, but the visibility for investors over the potential impact of climate risks and opportunities on banks’ financial performance remains limited,” he said.