KPMG's assessment of banks and sustainability reporting has a martial ring to it: Only if financial institutions position themselves now can they win the "huge data battle" in the field of ESG.

Does it concern questions of the sustainability of financing and the CO2 footprint? "Banks will have to provide answers to these questions and many more by the end of 2024 due to ESG requirements," says Marco Lenhardt, Partner in Financial Services at the auditing and consulting firm KPMG.

When it comes to ESG reporting and CSRD, banks face a dual challenge. On the one hand, they need data from their customers, and on the other, they need data from their own organisation. "When it comes to data procurement, the customer interface is often one of the biggest hurdles," says Lenhardt. Only the customers can provide the banks with the data – and this requires a willingness to deliver quickly and in good quality.

In turn, banks must collate customer data and their own data in CSRD reporting. "When the bank discloses its sustainability status, it is divided into its own business operations and the information from customers or the portfolio. In the end, banks have to bring both together to form an overall picture." The scope is huge. For a complete CSRD report for a bank, more than 1,000 data fields have to be filled in.

Time is short, but at least all larger banks are already active in CSRD implementation projects. "It is often not clear in which unit and in which system of the bank the data is stored. Even if there is a sustainability department, it is usually more concerned with strategic issues and less with collecting the data that the institution needs for CSRD reporting", recounts Lenhardt from his work in the field.

Large banks have the resources to tackle the task. "Small banks will not be able to master CSRD reporting on their own. The associations are currently developing assistance for these institutions." For the smaller institutions, the fact that their customers are primarily SMEs makes things even more difficult. As these, in turn, are obliged to provide less comprehensive reporting than large listed companies, a lot of data has to be collected manually.

One reason for the problems is that the vast majority of a bank's business customers do not have access to data that can be purchased. "If I ask the controller in a company with 200 employees about energy consumption, supply chains or the carbon footprint, he won't have an answer," says Lenhardt.

Although corporate customers are not as challenged as banks, the customer must also provide 150 to 200 individual items of data in order for financing to be categorised as sustainable. In the future, loans and investments in sustainable areas should become more attractive. "If the ESG ratings don't provide the information, it will be difficult."

The first reports, in accordance with the new CSRD standard, are due by the end of the year. According to Lenhardt, there will often not be established processes, but interim solutions because it would not work otherwise. Furthermore, banks have no formal sanction options if customers do not provide their ESG data. There is, of course, the option of adjusting the conditions. "But with existing customers in particular, you end up running after the data when in doubt."