The role of the financial sector is to shape and promote good practice in sustainability reporting. Interview with Emil Ślązak, former Vice President of the Management Board in charge of the organisation’s management operations
Non-financial reporting has indeed gained prominence within the business community in recent years. Why does the European Union want to burden companies with new regulations?
The implementation of new regulations primarily reflects a paradigm shift in economic development that has been underway for some time, where financial performance is no longer the sole, or even the most crucial, parameter for assessing an entity’s performance. Moreover, it serves as a component of the European Union’s (and beyond) climate policy, which would be unattainable without the active participation and efforts of the private sector. However, it is essential to recognize that the necessity for companies to adapt to these new regulations often presents a significant challenge. In executing its climate policy, the EU does not consider the varying levels of economic development among its member states, resulting in more complex implementation of specific targets for some countries and necessitating greater effort and financial expenditure.
In the context of ESG regulation, it is crucial to consider the rising public expectations in this area. Consumers are increasingly interested in understanding how individual companies address environmental and social issues. Brands that proactively engage in these areas and exhibit a responsible approach undoubtedly gain a competitive advantage in the eyes of customers.
And what value does non-financial data have for investors? Are they not primarily focused on the financial performance of companies?
Non-financial data holds significant value for investors, as they recognise that financial results alone do not offer a comprehensive understanding of a company’s health and prospects. Although financial performance remains a decisive factor in investment decisions, ESG data serves as a valuable complement. Non-financial reporting can assist investors in evaluating the risks associated with a company’s impact on the environment, employees, local communities, and customers, as well as how these factors may influence the company’s operations and growth potential. Consequently, investors gain a more holistic view of the company’s situation.
Is there a similar approach taken by the banks that finance the activities of companies and the investments they make?
With the mounting pressure and expansion of regulations in the realm of sustainability reporting, it is likely that no financial institution in Poland can afford to overlook environmental or, more broadly, ESG factors. Furthermore, the financial sector assumes an additional role when it comes to sustainability reporting. Banks are not only subject to evolving regulations in the reporting domain but also serve as catalysts for change. Eager to diminish their adverse impact on the environment, financial institutions have begun to curtail funding for projects that contradict this objective. Consequently, within a few years, projects with detrimental environmental consequences will find it exceedingly challenging, if not impossible, to secure external financing. This situation alone offers a potent incentive for companies across other economic sectors to reduce their negative environmental impact. Otherwise, their continued growth may be called into question.
The fact that banks are among the first to implement sustainability reporting regulations makes it the role of the financial sector to both shape and promote good practice in this area.
It is also worth noting that banks are one of the most numerous groups pursuing ESG ratings and their systematic improvement.
Are ESG ratings intended to be the equivalent of classical ratings that are a measure of the risk associated with an investment in the securities of an entity?
In a way, yes. The ESG rating primarily serves as a confirmation of sustainable business practices and effective management of ESG risks. Simultaneously, it addresses the increasing expectations of institutional investors, individual investors, and other stakeholders. According to Deloitte’s estimates, 65% of institutional investors regularly utilize ESG ratings—at least once a week—when making decisions.
How is BOŚ involved in the implementation of good non-financial reporting practices and their promotion?
BOŚ has been committed to its pro-environmental mission for over 30 years, acting as a pioneer in promoting and supporting eco-friendly investments. Approximately two decades ago, prior to the introduction of the first EU regulations in this area, BOŚ began publishing environmental reports summarizing its activities in the realm of ecology. Notably, BOŚ was the first financial institution in Poland to measure the volume of greenhouse gas emissions associated with its operations and implement a carbon footprint compensation plan, which it has consistently executed in subsequent years.
BOŚ also leads the market in terms of its ESG rating. In 2021, Morningstar Sustainalytics awarded BOŚ an overall ESG Risk rating of 19.9, indicating a low risk of material negative impact from ESG factors (“Low Risk”). BOŚ then significantly improved this rating to 14.2 in 2022. This score positions BOŚ among the top 9% of the highest-rated banks globally (out of more than 1,000 financial institutions assessed) and within the top 8% of the over 15,500 total companies worldwide surveyed by Morningstar Sustainalytics. Nevertheless, we recognize that we cannot rest on our laurels; much work remains to be done, and maintaining a strong ESG rating demands ongoing efforts and tackling further challenges.
Can we conclude, therefore, that the Polish financial sector follows the EU’s sustainability reporting guidelines in an exemplary manner?
As a sector, we are consistently striving for excellence, although it is still premature to draw definitive conclusions, given the ongoing evolution of reporting regulations. The 2022 PwC survey “Green Finance in Poland” reveals that only half of the surveyed financial professionals felt that “their institution is up to date with all sustainable finance requirements.” However, this result indicates a significant improvement compared to the 2021 survey, where only 21% of the surveyed banks reported being current with regulations. This positive trend should persist, and the banking sector is expected to develop best practices in this regard.
Banks are already paving the way in non-financial reporting, allowing other companies to benefit from their experience. The number of companies reporting on sustainability issues is anticipated to grow steadily as a result of new disclosure requirements affecting an increasing number of companies and the trend toward incorporating ESG considerations into corporate growth strategies.
Dr. habil. Emil Stanisław Ślązak, Prof. SGH
Former Vice President of the Management Board at Bank Ochrony Środowiska, where he oversees the organisation’s management operations.
A graduate of the Warsaw School of Economics (SGH), Dr. Ślązak pursued doctoral studies from 2000 to 2003 and has been a part of the institution ever since. In 2003, he assumed the role of assistant professor, and in 2017, he earned the rank of full professor at SGH, where he currently serves as the head of the Retail and Corporate Banking Department at the Institute of Banking. Additionally, since 2019, he has been a member of the Scientific Council for economics and finance at SGH.
His research is focused on analysing the development of financial innovations and transformation models of bank financial intermediation. He is a member of several scientific and industry organizations, including the Polish Financial and Banking Association, Alumni Global Village Program Lehigh University (USA), Fachkommission Wirtschfts- und Sozialwissenschaften im. J.G. Herder-Forschungsrat (Germany), and European Money and Finance Forum SUERF (Austria)
Last Updated on August 2, 2023 by Krzysztof Kotlarski