Summary of ESG and Digital Transition as Measures of Long-term Sustainability for Banks

00:00:00 - 00:50:00

This video discusses ESG and digital transition as measures of long-term sustainability for banks. It notes that while social and environmental factors are important, governance and digital factors are currently the main determinant of sustainability for banks. The lack of a global data standard around these factors is a challenge.

• 00:00:00 The Scope Ratings team has defined sustainability modifiers for banks and has published an extensive research report on the topic. The report will be available for download on this platform.
• 00:05:00 The video discusses ESG and digital transition risks for banks, and provides a qualitative assessment of preparedness of banks for these risks. The assessment results in a sustainability qualifier, which can be either best in class, advanced, or developing. Banks with the most comprehensive management of ESG risks relative to their peers are considered advanced or best in class.
• 00:10:00 The video discusses the challenges banks face when it comes to long-term sustainability, specifically in terms of digital transition, governance, and materiality. The findings show that while environmental and social risks are important, they are not currently driving banks' long-term sustainability ratings.
• 00:15:00 The goal of this assessment was to refine views on the long-term sustainability of banks by looking at evidence that they are transitioning to remain relevant. The assessment looked at 54 banks and found that, while a quarter of them deserve a positive impact assessment, most are average or not very well understood nor measured or managed.
• 00:20:00 The video discusses how ESG and digital transition are measures of long-term sustainability for banks. It interviews four banks - BNP Paribas, Santander, ING and Barclays - and finds that, in terms of sustainability, BNP Paribas is the best-in-class, with Santander and ING also scoring well. Regarding digital transition, Santander and ING are both strong in developing values and solutions catering to retail clients and expanding their geographical reach, while Barclays is strong in developing payment solutions.
• 00:25:00 The video discusses the importance of digital transition for banks, and how it is typically a sector-specific issue. Issuers of ratings such as Standard & Poor's (S&P) use digital transition as part of their social assessment. The assessment includes assessing a bank's interactions with stakeholders, as well as its long-term business model.
• 00:30:00 The video discusses the importance of digital transition for banks, and discusses the three dimensions of materiality: credit risk, environmental risk, and cyber security risk. It discusses how the importance of each dimension may change over time, and discusses how banks can measure and assess these risks.
• 00:35:00 This video provides an overview of ESG and digital transition as measures of long-term sustainability for banks. The key drivers of the modifier are tight to the horizon, focusing on typical three to four year rating horizons, and including climate risk factors at this stage due to the long term nature of the rating horizon. Transition risk is also a key driver of the modifier, as policies that could accelerate the assessment of banks are implemented.
• 00:40:00 The video discusses the ESG and digital transition as measures of long-term sustainability for banks. It notes that while social and environmental factors are important, governance and digital factors are currently the main determinant of sustainability for banks. The lack of a global data standard around these factors is a challenge.
• 00:45:00 The presenter discusses the ESG analysis of banks, noting that while the results are not positive, progress has been made in terms of transition planning. They state that although a radical change in the way banks operate is unlikely, it is important that banks transition in an orderly manner and that stakeholders (e.g. regulators, investors) are pushing for banks to be more proactive in addressing climate risks.
• 00:50:00 The presenter explains that banks are using climate stress tests to prepare for future changes in the economy, and that these tests are important for management awareness and credit ratings. They also mention that regulators are starting to require more detailed information from banks in this area.