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

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.

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Massimo Bettanin, EY Romania Climate Change and Sustainability Services Partner: “EY survey confirms what we are observing in Romania where all major banks are more aware of their critical role in supporting the transition to a low carbon economy and are increasingly paying more attention to the environmental and social risks resulting from their lending and investing activities. The relatively low priority of the workplace Diversity & Inclusion agenda shall be seen as a ‘blind spot’ which, if properly addressed, would strengthen the decision making process at all level of the organization, help the banks to be ‘fined tuned’ with the different components of the society they are supposed to work with and strengthen the banks’ resilience against the continuous changes that they are facing during this challenging and volatile time.”

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).

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 the 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.