Key Takeaways from Bank Director’s Bank Audit & Risk Committees Conference - Maryann Bruce
How Banks Are Stepping Up Their ESG Plans
I was honored to be a panelist at Bank Director’s Bank Audit & Risk Committees Conference discussing How Banks Are Stepping Up Their ESG Plans. The panel was moderated by Emily McCormick, Bank Director, and Vice President of Research. The other distinguished speakers were Mike Ouellet, Director, Androscoggin Bank, and Michael Faillo, SVP, Chief Sustainability Officer, Fifth Third Bank.
While many organizations have made significant strides in unlocking the benefits of ESG, the issues a company faces vary widely by company size and maturity as well as industry. In my experience, there’s no one-size-fits-all solution. It’s critical that a company determines who they are and what they stand for and develop ESG strategies that are aligned with the company’s mission.
I’d like to share some of the highlights from my contribution to the discussion.
Amalgamated Bank’s History and Commitment to ESG
Amalgamated Bank’s ESG journey started a long time ago. For nearly a century, Amalgamated Bank has served as America’s socially responsible bank, empowering organizations and individuals to advance positive social change. Amalgamated Bank is a public benefit corporation, the country’s largest B Corp® Bank, and a proud member of the Global Alliance for Banking on Values. We advocate for those working to make the world more just, compassionate, and sustainable. Our commitment to ESG and the greater good is found in our products and services, operations, policies and procedures, and entire business model.
Over the years, we implemented numerous mission-aligned ESG actions.
Environment: We were the first U.S. bank to set full portfolio targets under the U.N. Net Zero Banking Alliance guidelines. We committed to 49% reductions in 2030 and net-zero greenhouse emissions in our financing and operations by 2045. Our targets are absolute emissions targets and do not rely on offsets. This has served us exceptionally well with investors focused on ESG and the pending SEC disclosures.
Social: We fight for worker’s and human rights. We were the first bank to raise our minimum wage to $15 an hour and then $20 an hour. And when it comes to DEI, the CEO and Board lead by example. Seven of 11, or 64%, of the CEO’s direct reports are diverse, and of our 12 board members, five are women, three are black, and one is LBGTQ+.
Governance: We were the first U.S. bank to endorse the U.N. Principles of Responsible Banking and we are a proud member of the Global Alliance for Banking on Values. We recently changed the name and charter of our Compensation Committee. Our new name is the Compensation and Human Resources Committee because it better reflects that talent is the lifeblood of the bank and our most important asset. We recognize that our people are the basis for the bank’s long-term success. They are the ones who make strategic decisions, ensure alignment with our mission, serve our customers and local communities, manage risks, determine our investments, and drive innovation.
Climate Disclosures
Europe has been leading the way when it comes to climate disclosures but that’s changing. In March of this year, the SEC proposed new rules relating to climate disclosures. If these rules are adopted, public companies would be required to provide audited financial statements containing climate-related financial impact and expenditure metrics, an accounting of their greenhouse gas emissions, the environmental risks they face, and the measures they’re taking in response to those risks. New rules are also being proposed on ESG labeling to ensure “truth in labeling” and not “greenwashing.”
When Amalgamated Bank started working on the measurement and disclosure of financed emissions, those emissions that are connected to loans and investments, it was imperative to us to have an approach that was standard for the entire banking industry. We didn’t want one bank doing it one way and Amalgamated Bank doing it another way because it would create confusion around how it’s being measured and inconsistency, making comparisons between banks difficult.
The lack of consistent standards is one of the primary reasons we have uniform financial accounting rules. We thought the same should be true for financed emissions disclosures, and that’s why we helped launch Partnerships for Carbon Accounting Financials. It’s a global partnership of financial institutions working together to develop and implement a harmonized approach to assess and disclose the greenhouse gas emissions associated with their loans and investments. This common standard is now used by Amalgamated, Fifth-Third, BlackRock, Citibank, and more than $70 trillion in bank and investment assets.
The Board’s Role in ESG Oversight
While some industry leaders and politicians believe focusing on ESG and climate change is the trend du jour or a waste of time, I respectfully, disagree. Focusing on people and the planet is not mutually exclusive with driving profits. Given that extreme climate impacts are already being felt on every continent, threatening the lives and livelihoods of up to three billion people, I would be very concerned about any board of directors that is not regularly discussing ESG including climate in the boardroom.
But, where to start? Some ESG questions and considerations boards should be discussing with the leadership team relate to strategy, risk assessment, communication, and key stakeholders.
Regarding strategy, the board may want to ask management:
- How are ESG risks and opportunities integrated into the company’s long-term strategy and how are they prioritized?
- Are they using financial and non-financial and quantitative and qualitative metrics to define success?
- How are they measuring and monitoring progress against these metrics?
- How will they determine the ESG matters to be discussed with, and reported to, the board?
Regarding risk assessment, the board should ask leadership:
- Have they determined those ESG risks and opportunities that could materially impact the company’s strategy, operations, or financial performance?
- Have they incorporated them into the enterprise risk management plan?
Regarding communication the board should seek to understand:
- How the company communicates its purpose and goals to achieve long-term sustainable success.
- The process to ensure communications and activities are aligned with the company’s purpose and stakeholder interests.
- If the messaging is consistent across financial and other company reports.
- The ESG commitments that have been made public, and how they will be monitored.
Regarding key stakeholders, the board should ask:
- Beyond investors, to what stakeholders such as customers, communities, employees, regulators, suppliers, etc. is the company accountable?
- Have they conducted a materiality assessment to determine which ESG issues matter most to these key stakeholders?
- Has there been an assessment of how this broader group of stakeholders could impact long-term value?
- Have employees been consulted on which ESG issues are most likely to affect their employment decisions?
Directors should play a significant role in keeping ESG top of mind and guiding the leadership team to allocate the appropriate human and financial resources to the strategy. Visionary companies and boards value being an ESG leader because they understand how important it is to the company’s culture, brand, and long-term success.
