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Background
ESG data and, in particular, climate-related data have become increasingly important in the financial sector. Market players have launched several initiatives to assess climate-related risks and prepare for the upcoming ESG disclosure templates in June 2022. Beside third-party ESG data, banks will need to collect ESG data from their clients during loan origination and on an ongoing basis. In this respect, the EBA Loan Origination Guidelines (May 2020) provide a list of data elements to be collected. This should be underpinned by a sound ESG data governance and architecture with quality controls. In addition, the TCFD initiative has provided useful recommendations that will be the foundation of the ESG disclosure templates currently developed by the EBA. For more information related to the TCFD initiative, please refer to our previous publication “Climate Reporting for Banks – A Gradual Approach” from August 2020. The upcoming Pillar 3 ESG 1 disclosure will require a sound and robust data quality framework.
Our Understanding
One of the elements of the TCFD Implementation Guide developed by the Climate Disclosure Standards Board (CDSB) 2 is to ensure that banks “(…) use the same quality assurance and compliance approaches for climate-related financial information as for finance, management and governance disclosures”. We therefore think it is indispensable for banks to apply the highest standard available to ESG data aggregation and reporting processes. In 2013, the Basel Committee on Banking Supervision (BCBS) issued principles for effective risk data aggregation and risk reporting – the BCBS 239 principles – in an effort to enhance banks’ risk data aggregation capabilities and internal risk reporting practices. Their application can ensure standardised processes, improve the quality of the reported information, reinforce credibility among stakeholders and improve reporting processes.
Our Approach
We have created a ESG data aggregation and risk reporting framework that is premised on the principles of BCBS 239. The new framework is derived from our expertise in the application of BCBS 239 principles and in sustainable finance (e.g. climate scenario analysis, SASB and TCFD report). Our experience has shown that ESG data today lack standardisation and transparency which present a challenge from a governance, aggregation and risk reporting point of view.
Benefits of Our Approach
- Process efficiency by ensuring the quality of the disclosure from the start
- Higher ESG data accuracy and transparency
- Standardised ESG data collection process
- Understanding and documentation of the scope and limitations of ESG data
- Higher credibility among investors, regulator and supervisor
