Benchmark your ESG disclosures and understand your value creation opportunities

ESG Reporting Insights: Financial services

  • Report
  • 3 minute read
  • February 12, 2024

The pressure on financial institutions to understand and disclose their sustainability performance is intensifying. They’re navigating shareholder proposals around environmental, social and governance (ESG) matters and public scrutiny over the impact of the capital they deploy. At the same time, regulators are proactively mandating banks and insurers to assess and manage climate risks through measures such as the Office of the Superintendent of Financial Institutions’ (OSFI) guideline B-15.

As a result, financial institutions are working to better understand the environmental impact of their business decisions, such as the carbon emissions generated by a particular loan or investment, for example. But social and governance matters such as financial inclusion, employee benefits and welfare, responsible lending and ethical business practices are also rising up the agenda of stakeholders. Leading financial institutions understand that many of these issues also affect their operational performance and ability to attract and retain skilled talent.


Benchmark your disclosures using our analysis of Canadian ESG reporting

Financial services
All industries

Analyzes and incorporates ESG issues into long-term strategy
%
%
Identifies and focuses on the company’s material ESG issues
%
%
Discloses a strategy to address key ESG risks
%
%
Discloses a strategy to address key ESG opportunities
%
%
Identifies climate risks
%
%
Discloses Scope 1, 2 and 3 emissions
%
%
Undertakes a climate scenario analysis
%
%
Sets and reports progress against measurable diversity targets
%
%
Describes ESG governance structure in detail
%
%
Obtains assurance over greenhouse gas emission data
%
%
Source: PwC Canada’s ESG Reporting Insights analysis.

We recently analyzed the sustainability reports and other disclosures of Canada’s top financial services companies, as well as businesses from other sectors. Across all industries, we found that many companies will need to work extensively to close the gaps between their reporting and what’s required to meet new regulatory requirements and the climate change reporting expectations of stakeholders. But we also saw sector-specific opportunities for organizations to build trust with stakeholders and increase their long-term enterprise value.

Benchmarking the ESG reporting of Canada’s top financial services companies

Many Canadian financial institutions find it difficult to accurately estimate the carbon emissions generated by their loan or investment portfolio. We’re seeing some lenders and investors address this challenge by requiring companies to disclose their Scope 1 and Scope 2 emissions as a condition of receiving financing. High-quality data reduces the reputational risks and public skepticism that can arise when companies rely on imprecise estimates to calculate emissions in their value chain. It can also be used to make better internal decisions. 

We’re increasingly seeing financial institutions use this type of data in risk assessment and management processes such as credit risk analyses, stress testing and climate scenario analyses.

Additionally, regulators expect financial institutions to disclose their management of climate risks. In 2023, OSFI issued guideline B-15 on climate risk management, which is scheduled to take effect in stages starting as early as fiscal 2024 for some organizations. It will require federally regulated financial institutions to develop risk management capabilities to identify, measure, manage, monitor and report climate-related risks as part of their overall risk management.

The financial services sector is making headway in preparing for inbound regulation, but additional work is needed

55%

disclose business activities vulnerable to transition climate risks.

54%

disclose their business activities and assets vulnerable to physical climate risks.

61%

reference the Task Force on Climate-related Financial Disclosures or its principles.

Sustainable finance is growing in Canada and around the world as banks and institutional investors direct funds to environmentally and socially beneficial ventures. These include initiatives such as projects that generate renewable energy, increase access to health care and accelerate the development of new climate transition technologies, among others. The growth of sustainable finance illustrates a broader commitment among financial institutions to integrate environmental stewardship, social responsibility and robust governance into their business models.

Financial institutions have developed a deeper awareness of the financial impacts of climate change and are advancing climate risk assessments and sustainable lending practices. This is one part of a broader effort among financial institutions to enhance their ESG disclosures, particularly as the importance of robust governance and processes comes into clearer focus with recent public scrutiny.

These commitments—when accompanied by clear targets and key performance indicators (KPIs) that show the progress made toward those targets—can help build trust with a broad group of stakeholders. But that trust can be eroded if the public perceives that the sustainability impact of a loan or investment is inflated. Obtaining external assurance over your metrics can be a powerful way of building trust in your disclosures.

The financial services sector also relies heavily on human capital. Investors look at turnover rates and other indicators of corporate culture, such as a company’s approach to workplace diversity and inclusion, to help them assess how well a company attracts and retains employees.

Financial services companies have opportunities to build additional trust in their ESG reporting and initiatives

51%

disclose KPIs for at least one-quarter of their material topics.

30%

obtain at least limited assurance over their ESG metrics.

79%

disclose workplace diversity policies/strategies.

The ESG value creation opportunities for financial services companies

Financial services companies can also use sustainability initiatives beyond workplace diversity and inclusion to engage their workforce. For example, in our Hopes and Fears 2023—Canadian insights survey report, 65% of banking and capital markets employees told us they believe their employer has a responsibility to take action to address climate change. Clearly communicating your sustainability strategy, targets and performance can help you meet these and other stakeholder expectations. This can differentiate your brand in ways that create a competitive advantage by increasing access to top talent and investment capital.

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