Daily Management Review

New Bank Group To Create Method To Track How Financing Helps In Jobs And Environment


New Bank Group To Create Method To Track How Financing Helps In Jobs And Environment
Plans of development of a new method of measuring the environmental and social impact because of their financing was announced on Wednesday by a group of banks which included UBS and Singapore's DBS.
ABN Amro and Danske Bank are also included in the banking group which is called Banking for Impact and this group will partner with Harvard Business School for the project which is will have the objective of promoting a transition to a sustainable economy.
If this project becomes successful, the new reporting standards expected to emerge from it will be the first occasions that attempts of developing such measurements will have been attempted on this scale in the financial sector.
The Impact-Weighted Accounts Initiative which was launched by Harvard in 2019 has already analysed more than 1,800 public companies and has exhibited the existence of a "significant relationship" between lowering of stock prices and negative environmental impacts.
The ultimate aim of the project being undertaken by the new group is to develop a new reporting system which will be able to easily track the impact of financing that is usually not captured by the traditional system of financial reporting. For example, this new format could show whether a loan forwarded by a bank was ultimately used in a manner that resulted in pollution or helped to generate new jobs.
"The world economy needs a market-based system where social and environmental impacts are just as transparent as financial profit metrics," UBS Chief Executive Ralph Hamers said in a statement.
Putting a dollar and cents figure on such so-called "externalities is already being attempted to be achieved by a number of companies. However no standardised method is currently available. Such a new format of reporting will make is much easier for investors to run a comparison between companies within the same industry. 
By the end of 2022, a new industry protocol that will include rules about how to evaluate clients' impact in dollar terms is expected by the group, which hopes to include other banks, to be established at the end of the project. Those measures can then be aggregated with financial metrics to guide banks' decision-making.
"As a bank, we certainly have an impact on our stakeholders. If we understand our impact by measuring and reporting, we will also begin to understand where we can achieve the most positive impact and at the same time reduce our negative impact,” said Robert Swaak, chief executive of ABN AMRO.