The European Banking Federation (EBF), the umbrella group which represents 3,500 banks, has called for the European Union to open up its corporate environmental reporting databases because current environmental, social and governance data is still “strikingly insufficient”.
The call comes in a wide-ranging sustainable finance roadmap from the EBF, published at the COP climate talks in Madrid today, which also touches on a proposed Sustainable Finance Guarantee Fund, green loan securitisation and a ‘sustainable finance supporting factor’ amongst other ideas.
“We call for EU to open up its databases”
The Brussels-based federation noted that ESG data can already be obtained from several data providers but the “availability or exploitability of the ESG data on a wide range of investee companies’ activities and/or practices is still strikingly insufficient”.
The federation added that legislation affecting the reporting of non-financial information does not cover a large part of the European business sector and “may constitute a barrier” to the objectives of accelerating market transition, as it does not make it possible to collect “comprehensive data on ESG criteria and associated performance”.
For the EBF, part of the solution is for the EU to open up some of its databases to banks so they can have direct access.
“To facilitate the efforts of the financial sector to steer the funding towards sustainable activities, we call for EU to open up its data-bases that collect environmental reporting data and make those re-usable for finance providers.”
The EBF, headed by CEO Wim Mijs, says relying on market incentives – possibly a reference to the TCFD and other initiatives – and engagement with corporates is “not enough” to obtain ESG data.
This approach, it says, underestimates the costs of obtaining data from companies that do not publish ESG information. The data issue, “if not dealt with appropriately, will be a clear source of competitive distortion” between big corporates and SMEs.
It concludes: “It should therefore be the priority of the EU legislators to ensure the symmetry between the objectives to mainstream sustainable finance, screening criteria and proper risk management on one side and the reporting requirements.”
EU legislators last week indicated a willingness to take on this issue by adding in a requirement for listed companies to disclose against its new EU green taxonomy, instead of just investors.
The EBF's 64-page report comes after the European Banking Authority last week confirmed it would develop a climate stress test and further explore the possibility of offering banks favourable prudential treatment for lending to green projects, the controversial ‘green supporting factor’.
‘Sustainable Finance Supporting Factor’
What is now termed a ‘Sustainable Finance Supporting Factor’ is a key part of the EBF’s proposals.
It calls for the European Banking Authority to explore the possibility of introducing a supporting factor for certain assets that are classified as sustainable under the EU taxonomy and that at the same time demonstrate a lower financial risk due to their sustainability profile based on eligibility criteria established by the EBA.
The federation says this would address the criticism of the Green Supporting Factor that was perceived as lacking a link between risk and capital, which therefore raised financial stability concerns.
The EBF is hosting a panel today in Madrid featuring several big bank CEOs.