ESG reporting in the financial sector is at a turning point – and with it the hope of gaining transparency and management capability through key sustainability figures. But the reality is lagging behind the expectations.

„If you look at the first wave of CSRD reports, you realise that the degree of freedom left by the regulations is enormous“, says Holger Wußler, ESG expert at KPMG. „The requirements lead to striking differences that make a real comparison almost impossible." The range in methodology and data quality is particularly striking – from complete real data analyses to rough approximations at sector level.

Since 1 January 2024, the Corporate Sustainability Reporting Directive (CSRD) has required large and listed companies to disclose climate-related and social indicators. Other large companies will follow in 2025, and listed SMEs in 2026. At the same time, the new EU Capital Requirements Regulation (CRR III) will apply to bank reporting from 2025. Wußler sees more stringency there: „We are seeing significantly more regulatory intervention in disclosure under CRR III. The corset is tighter, there is a stronger focus on highly climate-relevant sectors, and this makes the data more reliable and comparable", he says.

In practice, the picture is fragmented. While some institutions are strategically integrating ESG, others are still orchestrating the topic „with Excel and gut instinct“, as Wußler puts it. The result: there are massive shortcomings when it comes to data. „The proportion of real data is currently often only between 0.5 and 25% – that's frighteningly low and shows how big the task of data procurement still is", he says.

Yet there are simple levers. According to Wußler, „the quick solution is actually obvious.“ Anyone who collects ESG data during the credit process automatically integrates it into the portfolio – a quick win that many banks have so far failed to capitalise on. The hope of obtaining reliable ESG data via the reporting obligations of SME customers has been dashed. „With the Omnibus Act, this door is now closed– and the responsibility lies with the banks again.“, he notes.

This is a problem, particularly with regard to the management and decarbonisation of loan portfolios. „We have two methodologically separate worlds: On the one hand, the current carbon footprint, measured by PCAF, and on the other, decarbonisation pathways via transition plans,“ explains Wußler. PCAF is the Partnership for Carbon Accounting Financials (PCAF), an international industry initiative to standardise the measurement and disclosure of greenhouse gas emissions in the credit portfolio. According to Wußler, the challenge is to link the two worlds in order to actually achieve controllable effects. And this requires much more than just writing an annual ESG report: „If you are serious about decarbonisation, you have to monitor and manage at a much higher frequency", he argues.

At present, it is above all highly emissions-intensive sectors such as shipping, aviation, or power plant financings that pose a particular challenge. Many banks rely on generalised sector values instead of collecting specific portfolio data. The European Central Bank has already reacted and criticised the lack of consistency in ESG disclosures.

Last but not least, KPMG partner Wußler also sees political failure as part of the problem. „A mandatory, streamlined ESG data set for SMEs would have been the pragmatic middle way. Instead, the focus has been entirely on a voluntary approach – which will not improve the data situation.“ For banks, this means that they need to further expand their sustainability expertise – strategically, operationally, and data-driven. Because one thing is clear: regulatory pressure is still increasing, and with it the need to not only document ESG, but to manage it effectively.