On Wednesday, a group of banks, including Singapore’s DBS and UBS announced plans to create a new way of measuring the impact of environmental and social financing.
The group, called Banking for Impact, also includes ABN Amro and Danske Bank; it will team up with Harvard Business School for the project which aims to help promote a roadmap for transitioning to a sustainable economy.
The new reporting standards will mark the first time such measurements will have been attempted on this scale in the financial sector.
In 2019, Harvard had launched its Impact-Weighted Accounts Initiative following an analysis of than 1,800 public companies; the analysis showed the “significant relationship” between negative environmental impacts and lower stock prices.
Banking for Impact aims to devise a new reporting system that tracks the impact of lending not captured by traditional financial reporting, such as whether funds lent by the bank was ultimately used in a way that caused pollution or helped to create jobs.
“The world economy needs a market-based system where social and environmental impacts are just as transparent as financial profit metrics,” said UBS Chief Executive Ralph Hamers in a statement.
Already many companies have already tried to link funding to “externalities”, but there is currently no standardized method; Banking for Impact’s new reporting system will be crucial to help investors compare companies in the same industry.
The group aims to establish a new industry protocol, including rules on how to evaluate clients’ impact in dollar terms, by the end of next year. Those measures can then be aggregated with financial metrics to guide banks’ decision-making.
In a statement, Robert Swaak, ABN AMRO’s chief executive said, “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.”