Providing a sustainable road map to financial institutions 04 November 2021
Dr. Elli Siapkidou is the Financial System Research Lead at the World Benchmarking Alliance. We spoke with her to learn about the organization’s important metrics it is tracking to provide financial institutions with much needed sustainability guidance.
What is the World Benchmark Alliance and what is its aim?
The World Benchmarking Alliance (WBA) is a non-profit organization that assesses and ranks the world’s most influential companies’ performance on the United Nations Sustainable Development Goals (SDGs). We publish publicly available and free benchmarks that inform and empower business leaders and investors, as well as governments, civil society, and other key stakeholders. WBA insights aim to serve as an accountability mechanism, incentivizing companies to become a successful driver of change and deliver on the SDGs. Together with our Alliance, we are building a movement that enables transparent dialogue, and ultimately action towards a more inclusive, fair, and sustainable world.
Is it possible to measure the impact of the ESG plans and actions launched by financial institutions?
Well, this is indeed the aim of the Financial System Benchmark. Our plan is to research and evaluate the corporate disclosures of financial institutions in order to understand how they respond to the sustainability challenges of our times; the environment, society, and the economy. Are they committed to a 1.5°C trajectory for their financed emissions? Are they engaging with the investee companies and the corporations they insure/lend to make sure they are Paris-aligned? Are they engaging collectively to ensure successful sustainability outcomes, for instance on biodiversity? Are they identifying and assessing the human rights impacts of their financing activities? These are some of the questions we are planning to ask. And importantly, are they approaching these sustainability issues through a risk-to-the-financial-value lens or through an impact lens, acknowledging that they need to minimize their negative impact and contribute to solutions?
What steps can be taken to make sure the financial institutions have a real impact on the environment?
This is a great question, as this is exactly what our Financial System Benchmark aims to do, to provide a roadmap to companies. So, looking at what the financial institutions themselves can do, a great first step would be for them to acknowledge that they have an impact on the environment, through their investing, insurance underwriting, and lending activities. This can be followed by disclosure of the financed emissions in as much as detail as possible. Although it has been estimated that the finance sector funds emissions over 700 times greater than its own, only one quarter of financial institutions disclose their portfolio emissions. Then, it would be great to see time-bound targets in line with a 1.5°C trajectory, and engagement with policymakers and companies that are aligned with those targets.
In addition, financial institutions can invest and finance climate solutions to facilitate greater financial flows in new technologies on climate mitigation and transition. Similarly, on biodiversity, financial institutions can work collectively through the various initiatives (e.g. Finance for Biodiversity) to understand their negative impact on nature and seek to identify and set targets for regenerative solutions. Finally, regulation and initiatives like the TCFD and TNFD can help frame and support the actions that financial institutions take.
Can you tell me more about The Financial System Benchmark? What is the methodology?
The Financial System benchmark will assess 400 leading financial institutions on their contribution to the 2030 Agenda. During 2020, we conducted extensive global consultations to map existing behaviors and assess the practical action possible. What we found was that there is a need by civil society and stakeholders globally for the financial system to transform so that the system contributes to a more sustainable allocation of resources, and a more accurate representation of risks and opportunities, in line with planetary boundaries and social conventions. We need to transform finance in order to finance the transition ahead.
The methodology which we are currently finalizing captures these key issues which the financial institutions should focus on. It will be published in December 2021 and then we will start data collection, verification, and engagement with the financial institutions and analysis of the findings. The aim is to publish the full benchmark, including the ranking, by the end of 2022.
At is stands, we have identified 33 indicators that we will use to assess the 400 financial institutions. These are grouped under three measurement areas: Governance and Strategy; Respecting Planetary Boundaries (which includes greenhouse gas emissions and nature and biodiversity); Adhering to Societal Conventions (which is based largely on our Social Transformation framework) which looks at the bare minimum actions that all companies should undertake as part of their Responsible Business Conduct.