A group of banks, including UBS (UBSG.S) and Singapore’s DBS (DBSM.SI), on Wednesday announced plans to create a new way of measuring the environmental and social impact of their financing.
The group, called Banking for Impact, which also includes ABN Amro (ABNd.AS) and Danske Bank (DANSKE.CO), will team up with Harvard Business School for the project, which aims to help promote a transition 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.
Harvard launched its Impact-Weighted Accounts Initiative in 2019 and it has analysed more than 1,800 public companies to show the “significant relationship” between negative environmental impacts and lower stock prices.
The new group will aim to devise a new reporting system that tracks the impact of lending not captured by traditional financial reporting. This could show, for example, if money provided by the banks 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,” UBS Chief Executive Ralph Hamers said in a statement.
A number of companies have already tried to put a dollar-and-cents figure on such so-called “externalities”, but there is currently no standardised method, which would be crucial to help investors to compare companies in the same industry.
The group, which hopes to include other banks, aims to establish a new industry protocol, including rules on how to evaluate clients’ impact in dollar terms, by end-2022. Those measures can then be aggregated with financial metrics to guide banks’ decision-making.
Robert Swaak, chief executive of ABN AMRO, 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.”