Diversity and gender balance disclosures, employee mental wellbeing programmes, eco-friendly product list, net-zero strategies – these are not items one expects to find inside banks’ annual reports just a few years ago, yet one look at the 2022 end of year financial reports of local credit institutions would suggest that this practice is not a fad.

On 24th January 2022 the European Banking Authority (EBA) published a report on how to integrate technical standards on disclosures regarding Environmental, Social and Governance (ESG) risks. The aim of the report was to make sure that all “stakeholders are well-informed about institutions’ ESG exposures, risks and strategies and can make informed decisions and exercise market discipline.” With this framework the EBA defined granular templates, tables and instructions to ensure enhanced consistency, comparability and meaningfulness of institutions’ disclosures.

This newsroom delved into a sample of websites and reports published by Malta’s major banks to understand how these institutions are approaching their ESG commitments. If one were to judge solely by the banks’ statements of intent expressed in most 2022 end of year reports, there would be reason to believe that the ESG integration delineated by the EBA is being taken seriously. A mention of “net zero,” “sustainability,” “climate change” or “climate risk” features in the reports of all the largest banks, and ESG disclosures commitments are expressed clearly.

Also, all banks have set up (or are in the process of setting up) policies to integrate these disclosures into their reporting, whilst ESG committees that oversee this integration process have been set up by most of the largest institutions. HSBC Malta, APS and BOV, expressed their interest in taking the lead and have substantiated their intentions by becoming founding members of the Malta ESG Alliance (MESGA), an organisation set up on July 2022 with the aim of “acting as a platform for Maltese businesses to collaborate and work together in order to lead and drive national ESG goals and ultimately act as catalysts while leading by example.”

The banks seem to take different ESG integration approaches, however. When it comes to environmental disclosures, APS presented several templates in its ESG disclosure report that show the bank’s lending exposures categorised in terms of sectorial CO2 emissions, as well as a breakdown of the climate risk the exposure represents both in terms of the physical and transitional aspect. These templates also spell out, in detail, how these sectors can be distinguished according to their sensitivity to the impacts of climate change. Earlier this year it also launched a “responsible lending policy (RLP)” which is aimed at providing “clear and transparent assessment criteria for evaluating lending proposals from an environmental, social and governance (ESG) perspective.”

BOV, in its 2022 annual report, also gave an account of how during the year it had performed the first “materiality assessment” to assess the physical and transitional climate risk in its portfolio and have reported the potential losses in their annual ICAAP report. Both BOV and HSBC provide a breakdown of their “taxonomy-eligible” economic activities. This is in line with the EU taxonomy classification system that gives stakeholders appropriate definitions for which economic activities can be considered environmentally sustainable.

To integrate ESG criteria into its client’s portfolios, Medirect bank has designed a questionnaire that assesses its client’s sustainability preferences. The aim of this questionnaire is for the bank to take into consideration these preferences when it recommends securities for them to invest in. Questions range from whether clients have a preference for financial products that integrate sustainability, to how much of one’s portfolio would a client want invested in sustainable financial products.

Other banks such as BNF Bank and Fimbank reported that an ESG plan was being developed whilst Lombard bank said in its website that it “does not currently integrate sustainability risks in its discretionary management and advisory process,” however the bank will incorporate ESG considerations “in respect of other clients which may be onboard in the future.”

The variety of green products on offer stood out for some of the banks. Medirect Bank, for example, offer green funds, eco-friendly loans, green bonds, green home loans; APS launched a “green deposit portfolio” which is “ringfenced in such a way that for every euro deposited within the Green Deposit portfolio, an equal amount will be held in an environmental lending portfolio.” BOV, HSBC and BNF Bank also offer some form of green loans designed to finance eco-friendly initiatives.

There is also ample evidence to suggest that most local banks strive to honour the “S” in ESG by taking various societal commitments. HSBC launched several educational webinars for its retail and small to medium entities on how to transition to a greener business model, how to cut costs and improve efficiency while being environmentally friendly. Medirect employees participate yearly in volunteering and charity initiatives whilst BNF Bank supported Maltese literacy with a collaboration with the National Literary Agency.

Corporate Governance, the “G” in ESG, is perhaps a more standard entry in end of year reports. In the sections devoted to it, banks outline their renumeration policy as well as give details about internal audits and board distributions that are designed for fair distribution of power and transparency.

As a culture of corporate social responsibility spreads globally, the reactions have been mixed. Former Bank of England Governor, Mark Carney, justified calling the goal of net-zero “the greatest commercial opportunity of our time,” in an interview with the UN and argued that financial disclosures should be mandatory because what “gets measured gets managed.” Conservative critics in the US, on the other hand, have expressed their concern on this “woke” banking trend as they continue to hold that the government should never intervene in private business decisions. Some lawmakers have, according to a report by the Washington Post, even gone as far as to attempt to blacklist banks that use sustainability and climate risk as one of the factors on which they base investment decisions.