European banks lagging behind on sustainability – BlackRock study

The skyline with the banking district is pictured in Frankfurt, Germany on August 24, 2021. The photo is taken with a long time exposure and zoom burst. REUTERS / Kai Pfaffenbach / File photo

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  • “Very limited” ESG risk exposure measurement
  • “Few” have implemented a global strategy
  • Data, definitions, resources are all a challenge

LONDON, Aug. 27 (Reuters) – European banks are slow to act on sustainability and have limited understanding of their exposure to environmental, social and governance risks, a report for the European Commission of asset manager BlackRock.

The report, which will be used to help build sustainability into prudential banking rules, has proven controversial given the US company’s role as an investor in many banks.

The bloc’s executive was reprimanded by EU ombudsperson Emily O’Reilly in November for failing to properly account for conflicts of interest in awarding the contract to BlackRock’s financial markets advisory unit.

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O’Reilly said the Commission had not failed in its procurement process, but its conflict of interest rules were too vague and should be changed in the future.

In a 273-page report based on data and insights from a range of banking sectors and other stakeholders, released on Friday, the study said policymakers should take more action.

“Despite the increased efforts of banks and supervisors, this study finds that the pace of implementation to achieve effective ESG integration in risk management, prudential supervision, business strategies and investment policies needs to be accelerated. “, says the report.

Banks are increasingly under pressure from investors and activists about their role in the global transition to a low-carbon economy, especially their role in financing high-emitting companies in sectors such as energy. and utilities.

Among the findings, the report states that banks do not have a common definition of ESG risks, with most lenders yet to map how different ESG risks fuel financial risk and only a few have implemented a risk strategy.

“ESG factors are largely, though sometimes superficially, incorporated into lending policies, credit application processes and due diligence, especially for certain high-risk sectors,” the report says.

“However, coverage is often limited and, for example, off-balance sheet investing activities associated with advisory or debt capital markets are often out of reach.”

The integration of ESG risk into risk models and stress tests “is at an early stage”, and most banks have yet to integrate it into their internal risk reporting frameworks, he added. .

Among the findings, the report suggested that banks and supervisors are working on developing a granular definition of ESG risks, with some stakeholders calling for ambitious strategies with measurable targets and deadlines.

A Commission spokesperson said the executive planned to hold a discussion on the report with members of the European Parliament and other stakeholders, and would use the content of the report to help formulate future policy proposals.

BlackRock’s FMA, which operates separately from the asset management unit, said in a statement that it was delighted to hand over its study, as per the mandate of the Commission.

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Reporting by Simon Jessop, additional reporting by Lawrence White; edited by David Evans

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