New research shows lack of transparency and alignment of financial institutions across all urgent sustainability challenges

• The World Benchmarking Alliance (WBA) has assessed 400 banks, asset owners, asset managers and insurers on their contribution towards a just and sustainable economy.
• Only 20% of financial institutions publicly acknowledge their impact on people and planet, with less than 5% acknowledging they have a process to identify the impact of their activities on nature.
• Coinciding with COP27, the benchmark shows that only 2% of financial institutions disclose their financing to low-income countries.
• The benchmark reveals a fragmented sector that is insufficiently aligned to drive impact at scale.

Sharm El-Sheikh, 8 November 2022 – The World Benchmarking Alliance’s new Financial System Benchmark highlights that the financial sector’s current approach to tackling climate change and protecting human rights is fragmented, siloed and insufficiently aligned to drive scale. Published at COP27 today, it is the first benchmark covering 400 of the world’s leading financial institutions, including asset owners, banks, asset managers and insurers.

According to the World Benchmarking Alliance, a fifth (20%) of the financial institutions with the greatest ability to influence achievement of the UN Sustainable Development Goals have publicly acknowledged their impact on people and planet. Only 2% of financial institutions disclose their financing to low-income countries, despite $100billion worth of climate finance being promised to enable adaptation and mitigation of climate change in 2009 and going unfulfilled.

This is the first benchmark developed by the World Benchmarking Alliance that focuses on financial institutions. It covers governance, planetary boundaries as well as human rights and social issues, and provides insight on the progress (or lack of) in the finance sector. It recognises the interwoven connection between all these institutions, the conflicting roles they play and the different power dynamics. The results provide guidance for financial institutions to improve their impact on people and planet, and a transparent and independent mechanism tracking their progress against global standards and peers.

The benchmark highlights the challenges and complexity of aligning the financial sector with sustainable development, and shows:

• Only 20% of financial institutions publicly acknowledge their impact on people and planet. Without this reporting, processes to identify and manage impact cannot be put in place. Financial institutions should acknowledge the environmental and social impact of all financing activities and set targets against these impacts.
• Less than 40% of financial institutions have disclosed long-term net-zero targets. Of these commitments, only 2% have been translated into interim targets, of which just 1% are backed by scientific evidence. Financial institutions should set net-zero and interim emission reduction targets, and require clients and investees to do the same.
• Outside of the minimum legal requirements, less than 10% of the 400 institutions assessed disclose the processes they have in place to identify human rights risks and impacts within their own operations, and less than 3% within their financing activities. Financial institutions should perform a comprehensive Human Rights Risk Due Diligence across financing activities.
• Only 2% of financial institutions currently disclose their financing to low-income countries, 14% to excluded groups and 23% to small- and medium-sized enterprises and this lack of transparency makes it hard to understand what is being delivered. Financial institutions should report publicly on finance provision to low-income countries, SMEs and other excluded groups.
• Less than 5% of financial institutions acknowledge they have a process to identify the impact of their financing activities on nature. Given the reliance of the global economy on natural capital, and the millions dependent on it, financial institutions need to accelerate managing the biodiversity impacts of their financing activities.

Andrea Webster, World Benchmarking Alliance’s Financial System Lead, said:

Different parts of the finance sector have different roles to play in triggering the powerful domino-effect that is needed to mainstream sustainable finance. Providing transparency shows us what is currently being achieved, what can be scaled, and which areas need urgent collaboration.

We have developed this Benchmark as a tool for change. Yes, it shows a dismal picture overall of where we are now, but the intention is for it to provide a roadmap for companies themselves.

While we recognise that great efforts are being made by many, frustration is high and trust in the sector is low. This Benchmark provides a basis for hard but meaningful conversations. There is no hiding from the fact the world is behind on where it should be towards net zero and in ensuring that no one is left behind. We need a social transition as well as an energy transition.

The release of the Financial System Benchmark will be followed by the publication of an Insights Report in 2023.

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