European banks lead US and Asia-Pacific counterparts in overall ESG activity but need to do more on D&I agenda

• French banks lead European peers on environmental and social activity, while UK banks lead on governance
• However, the pace of improvement on social activity across European banks is slower than in North America and Asia Pacific, with workplace D&I activity particularly low

European banks lead globally on overall ESG (Environmental, Social and Governance) efforts, according to the latest EY Sustainable Finance Index. However, the pace of European improvement on social activity lags the US and Asia-Pacific banking markets, most notably on the Diversity & Inclusion (D&I) agenda.

European banks scored an overall ESG performance rating of 7.4 out of a possible 10, slightly higher than their prior year score (7.3) and ahead of both their North American (7.2) and Asia-Pacific (6.3) counterparts. Europe’s banks also lead their European financial services counterparts in insurance (7.3), and Wealth and Asset Management (7.0) in overall ESG activity. 

The Index reveals that most ESG activity at European banks took place across a limited number of key areas:

• Environmental: Launching green products (9.1); Energy management and climate change (9.3) and waste and water management (7.4)
• Social: Data protection and privacy (10), whistle-blower protection (10), and providing a safe workspace (9.9)
• Governance: Board effectiveness (7.6), transparency and control (7.5), and ESG governance (6.9).

The lowest levels of activity are in: Diversity and Inclusion (5.7); Board Diversity (4.7), and focus on quality (3.3), which includes adopting service quality systems such as ISO9000.

Gill Lofts, EY EMEIA Financial Services Sustainable Finance Leader, comments: “The leadership position taken by European banks across all elements of ESG is a testament to the sector’s commitment to making meaningful progress. However, there remains significant room for improvement. The social element of ESG is an increasingly essential characteristic of a responsible company, particularly in the current volatile world so it’s disappointing to see European banks progressing more slowly than peers globally in key areas such as D&I.”

Nigel Moden, EY EMEIA Banking and Capital Markets Leader, comments: “When banks invest in ESG, they become more attractive to their stakeholders – and they make the world a better place. These findings illustrate the outstanding progress that Europe’s banks are making across ESG. Despite facing ongoing volatility, banks are increasingly considering their impact on the world – be that their impact on the environment, as critical institutions in society, or as providers of well-governed financial security. However, Europe’s banks must not rest on their laurels and should focus on taking more impactful ESG-related actions – especially in lower performing social areas, not least as pressure mounts from investors, consumers and governments for them to do so.”

Environmental: French banks lead Europe on environmental activity 

European banks’ environmental efforts score 8.3 – up from 8.2 one year prior and ahead of both North America (8.1) and Asia Pacific (7.0).

With a score of 8.3, French banks rank ahead of the UK and Italy (both 7.6), Spain (7.1) and Germany (7.0) on overall environmental performance. France leads on ‘energy management’ (9.2), ‘launching green products and solutions’ (8.6) and ‘managing environmental risk across supply chains’ (8.0).

With their joint-second place environmental score of 7.6, UK banks perform relatively well on ‘energy management and climate change’ (8.9) and ‘offering green products and solutions’ (8.3), but perform less well on ‘policy, reporting and controls’ (5.7) and ‘environmental risk management across supply chains’ (6.4). As with their UK counterparts, Italy (also 7.6) performs strongly in ‘energy management and climate change’ (8.9) and ‘offering green products and solutions’ (8.3) but performs less well on ‘policy, reporting and controls’ (6.0) and in ‘environmental risk management’ (6.8).

Spanish and German banks lag in a number of key environmental areas, which drag down their overall scores. Spanish banks are relative laggards in offering green products and solutions (7.1). Although German banks are leaders in launching sustainable green products and solutions (8.6), they scored lowest on parameters such as ‘energy management and climate change’, ‘waste and water management’ and ‘environmental risk policy, reporting and controls’.

UK, Germany, Italy, and Spain all score below 6.0 in terms of ‘environmental policy, reporting and controls’ – and it is also France’s lowest performing environmental score (7.1) – highlighting the need for greater focus in this area.       

Social: European banks are progressing at a slower rate than North America and Asia Pacific peers

While Europe leads its regional counterparts in terms of overall social activity, the pace of improvement has been slower than in the US and across Asia Pacific, increasing from just 7.3 in 2018 to 7.4 in the most recent data capture. This compares to increases in North America from 6.8 to 7.3, and in Asia Pacific from 6.6 to 7.0 over the same period.

French banks lead their European counterparts in terms of overall social performance. High scores on social metrics, which include ‘employee wellness and support’, ‘competitive employee remuneration’, and ‘customer satisfaction’, drive France’s social score up to 7.7, followed by Spain and Italy (both 7.4), UK (7.2) and Germany (7.1).

All five European economies scored close to 10.0 on key social parameters ‘data protection and privacy’ and ‘workplace safety’, depicting the strong performance of European banks compared to their global peers. In addition, France, UK, Spain and Germany all score around 9.9 on ‘fair and competitive remuneration’, which includes managing salary gaps.

Although Italian banks lag relatively on this parameter (8.0), they lead their European counterparts in terms of their ‘fair competition and business practices’ (8.2). Spanish banks are leaders in ‘policy and control related to social risks and targets’ (10). UK banks lag on both of these parameters (8.0) and are further dragged down by relatively low performance in ‘employee wellness and support’ (6.5) with below average performance on parameters such as ‘providing day care services’ and ‘supply chain health & safety training’.

German banks scored lowest on their ‘whistle-blower protection’ and ‘policy and control related to social factors’. German banks also have the lowest gender diversity with proportion of women employees at 43%, compared to the UK (56%), France (54%), Spain (54%) and Italy (50%). 

Governance: UK market leads European counterparts on governance efforts

With a score of 6.6, European banks are ahead of both their North American (6.2) and Asia Pacific (5.3) counterparts. While European banks lead on ‘transparency and control’, ‘ESG governance’, and ‘board diversity’, North American banks lead on ‘compensation policy’ and ‘shareholder rights and protection’.

UK banks lead their European peers in terms of their Governance efforts (7.3), followed by France (6.7) and Italy (6.5) respectively, while Germany and Spain both lag with scores of 6.3. UK banks’ score reflects stronger performance compared to their European peers in key governance areas including ‘transparency and control’ (8.1) and ‘ESG governance’ (6.9). 

UK, France, Spain and Italy all score above 9.0 for their compensation policies – with Germany lagging on 6.7. Germany also comes last on ‘ESG Governance’ (6.2), largely due to its relatively narrow ESG reporting scope, fewer banks undertaking ESG-related audits, and fewer banks linking board compensation to ESG targets.

Banks across all the five largest economies performed lowest on ‘board diversity’ (4.4), due to lower performance on board gender and cultural diversity and relative lack of clarity on board structure policy.

Anne-Marie Balfe, EY EMEIA Talent Leader, comments: “When it comes to enhancing gender representation in their businesses, it is imperative that banks are continually doing more to improve across all areas and at all levels. More diverse workforces create higher performing teams that better reflect the customers they serve. Banks need to keep taking serious action where D&I is concerned if they are to remain competitive and agile within the wider financial sector.” 

ENDS

Notes to editors

• The EY Sustainable Finance Index includes data from 1,100 financial services firms from around the world, including 806 banks, 217 insurers and reinsurers and 140 wealth and asset management firms.

About the EY Sustainable Finance Index

The Index monitors more than 200 ESG-related disclosures for more than 1,100 financial services firms worldwide. It reviews the breadth and depth of each institution’s disclosure against these individual parameters, which have been grouped into 25 categories under the three environmental, social and governance components. This data is compiled into a scoring system, which ranks countries as they progress on their sustainability journey, creating a score out of ten (the ESG score), as well as measuring the extent of disclosure on activity (the disclosure rate), expressed as a percentage. The Index will introduce new parameters over time, allowing it to adapt to the industry’s evolving thinking on sustainable finance.

The Index is aligned with the Stakeholder Capitalism Metrics set out by the World Economic Forum (WEF) and International Business Council (IBC). It is not yet possible to directly map the Index’s 229 individual parameters with WEF-IBC’s 21 core themes, since many of WEF-IBC’s themes do not yet have specific metrics. However, as WEF-IBC’s work continues, our parameters will evolve with it, ensuring that the Index remains aligned with the Sustainable Development Goals and that it tracks developments by the Global Reporting Initiative, the Sustainability Accounting Standards Board (SASB) and the Taskforce on Climate-Related Financial Disclosures (TCFD). 

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