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Investment banks ‘could face diminished returns’ by failing to factor in sustainability

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Banks and other financial institutions are being pressured to report sustainability data in order to create long-term value, as negotiations attempt to drive responsible finance up the agenda.

The talks, which are being co-ordinated by the Sustainability Accounting Standards Board (SASB), have included shareholders, large corporations and multinational banks such as Goldman Sachs and Deutsche Bank.

The SASB is a cross collaboration, funded by the likes of Bloomberg and the Rockerfeller Foundation, and brings a wealth of experience from across all aspects of the public and private sectors, including McDonalds, Google, Harvard University and KMPG.

It focuses on specific sectors across society and is currently in the process of finalising standards to hold the financial industry to account, having recently published standards on healthcare.

The SASB is to issue standards on reporting to the US financial regulator, the Securities and Exchange Commission (SEC), and identify the key topics of sustainability that companies should report on. The standards also provide standardised accounting metrics that companies should account for on sustainability related topics.

The standards published on investment banking say that “financed emissions” should be a major factor to be taken into consideration when reporting back to the regulator, recognising that climate risks can “diminish” returns on investments.

“Environmental, social, and governance (ESG) risk factors are increasingly contributing to the financial performance of specific projects and companies at large”, they add.

Investment banking and brokerage companies that fail to address these risks and opportunities could face diminished returns and reduced value for shareholders.

“Banks must monitor and manage ‘financed emissions’ – or the greenhouse gas emissions of firms in which banks are invested or to whom they provide lending.”

There has also been mounting pressure in the UK for the financial services to take climate change risks into account in their business movements. Prince Charles, who recently launched a financial sustainability network comprised of chief financial officers, condemned “quarterly capitalism”, adding that “sustainable business equals good business”. 

He said, “There are clear links which demonstrate that those businesses addressing environmental and social issues deliver improved commercial returns.”

Further reading:

Prince of Wales launches financial sustainability network

FTSE: sustainability at the world’s leading investment index provider

FTSE’s ESG unit can “shed light” on responsible investment

FTSE launches new environmental index

Are these the world’s ‘most’ sustainable companies?

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