How do banks that commit to Principles for Responsible Banking measure up on sustainability KPIs?

Methodology

Selection of universe

For this analysis we started with the list of 354 PRB signatories; we then focused our universe on the signatories for which S&P Global Corporate Sustainability Assessment (CSA) data is available. These 137 banks and diversified financial companies account for $75.5 trillion of assets globally, or 80% of the asset value of the full list of 354 PRB signatories. In the remainder of this analysis, we refer to this group of 137 banks as ‘PRB Signatories.’ We also selected a reference universe of 1,231 banks and diversified financials with at least $550 million in assets and for which S&P Global CSA data is available. In this analysis, we refer to this as the ‘Benchmark Group,’ which has a combined asset value of $168 trillion².

Indicators

The S&P Global CSA compares companies across 62 industries via industry-specific questionnaires that assess, on average, 23 sustainability topics in 110 questions. We selected six KPIs to focus on in this analysis with the goal of measuring nonfinancial performance. The selection was informed by the ‘Principles for Responsible Banking Implementation Journey – Defining Responsible Banking’³. The PRB also developed a Responsible Banking Progress Statement to help signatories present their annual progress towards implementing the group’s principles. The document guides members on how to demonstrate their sustainability strategy in alignment with the six PRB principles, and throughout this analysis, we will quote from this document.

Below, we outline the six PRB driving principles, along with the S&P Global datapoints we used as KPIs to assess progress on this principle.

Principle 1: Alignment of business strategy with societal goals

To measure a bank’s overall progress toward aligning strategy with the UN’s Sustainable Development Goals and the Paris Agreement, we consider environmental, social and governance performance as measured by the S&P Global ESG Score. This datapoint measures a company’s performance on and management of material ESG risks, opportunities and impacts, informed by a combination of company disclosures, media and stakeholder analysis, modelling approaches, and in-depth company engagement via the S&P Global CSA⁴.

Our analysis finds that PRB Signatories perform significantly better with an average ESG score of 50 compared to 31 in the Benchmark Group.

On average, PRB Signatories also scored significantly better on each individual environmental, social and governance dimension, with the strongest outperformance on the Environmental dimension.

Principle 2: Impact and target-setting

In terms of impact analysis, the PRB recommends: "Show how your bank has identified, prioritized and measured the most significant impacts associated with its portfolio (both positive and negative)." 

To analyze progress in this area, we reviewed what percentage of banks in each group are publicly reporting on their materiality assessment; what percentage apply a double materiality approach; and what percentage prioritize the material issues found. 

Principle 5: Governance and culture

In terms of governance, the PRB recommends to: “Describe the relevant governance structures, policies and procedures your bank has in place/is planning to put in place to manage significant positive and negative (potential) impacts (including accountability at the executive leadership level, clearly defined roles and responsibilities for sustainability matters in internal processes, etc.) and support the effective implementation of the Principles.”

To measure progress on this front, we reviewed what proportion of PRB Signatories are publicly reporting on:

a) whether their materiality assessment process is third-party verified by third-party assurance;

b) whether the materiality assessment is integrated into the company’s enterprise risk management (ERM) process; and

c) whether the materiality assessment is signed off by the board of directors or by senior management.

Our analysis shows that PRB Signatories are more likely to have assurance, integration, and sign-off processes in place (see chart below).

Principle 6: Transparency and accountability

To measure progress on transparency and accountability, the PRB recommends that banks provide a progress statement with details on whether they use external assurance providers.

To assess this in our analysis, we reviewed what percentage of PRB Signatories use external assurance for their sustainability reporting. Our analysis shows that 77% of PRB Signatories use external assurance for their sustainability reporting, compared to 31% of the Benchmark Group.

Conclusion

PRB signatories make a commitment to align their core strategy, decision-making, lending and investment with societal goals represented by international frameworks such as the UN Sustainable Development Goals and the Paris Agreement.   

We used multiple S&P Global datasets as a proxy to measure bank performance on the PRB principles. Perhaps unsurprisingly, we found that commitment to sustainability via the PRB is aligned with better outcomes on a range of KPIs measured in the S&P Global CSA. In some cases, PRB Signatories in our analysis fare significantly better on sustainability KPIs compared with a larger Benchmark Group of banks that have not made these commitments.

As many banks seek to make the business case for their sustainability strategies, we hope this analysis can open the door to further investigate ties between sustainability commitments and performance on financial and nonfinancial indicators. 

¹Principles for Responsible Banking – United Nations Environment – Finance Initiative

²Source: Value of assets based on S&P Global Market Intelligence data.

³https://www.unepfi.org/industries/banking/principles-for-responsible-banking-implementation-journey/

⁴S&P Global ESG Scores