Perigon's Banking
Barometer 2023.

Materiality, in the context of sustainability, is a determination of the most important environmental and social issues to be managed and reported by a company. A basic assessment considers how these issues contribute to financial risks and opportunities — this is financial materiality, required under the ISSB's standards making their way into UK legislation through UK SDS and FCA listing rules.

Of the 51 institutions analysed, one third had conducted an assessment. Materiality disclosures were most prevalent in established Full Service Banks (70% had disclosed) and larger institutions. Yet only 22% of institutions with 500–2,000 employees had disclosed materiality considerations — a significant capability gap that needs closing.

Double Materiality: of those who assessed materiality, fewer than four in ten went far enough. "Double Materiality" incorporates an assessment of the company's actual and potential impact on people, planet and economic prosperity, in addition to financial materiality. It is embedded into the European Sustainability Reporting Standards (ESRS) being mandated through CSRD. Of the 16 institutions who disclosed a materiality assessment, only six (37%) had clearly taken a Double Materiality approach. A robust Double Materiality assessment is one of the most effective ways for an organisation to underpin its strategy, regardless of any disclosure requirements.

Plans that are not grounded in the actual issues that matter for a firm or embedded in the firm's core commercial strategy are likely to struggle.

On the surface, it appears many firms are prioritising sustainability efforts. However, digging deeper raises questions about the impact and efficacy of these efforts. While nearly two thirds disclose some form of a strategy, less than a third of these strategies are based on a clear articulation of the issues that matter most — that are material from a financial or impact perspective. Some "strategies" are simply three priorities: Environmental, Social and Governance. An organising framework rather than a strategy. Less than half are clearly embedded in the firm's commercial plans.

Scope 1 & 2 reporting is well established, driven by mandatory SECR requirements, and an additional eight firms beneath the threshold for SECR choosing to report anyway. TCFD reporting is more patchy: 41% have full TCFD disclosure, 18% partial, and 41% none at all — though the latter are largely smaller institutions only recently falling into scope.

Financed emissions are a gap. Given that financed emissions typically represent around 90% of a financial institution's total footprint, the fact that only 33% were reporting them represents a major blind spot. The combination of incoming UK SRS and PRA scrutiny means this will need to change rapidly, despite the data challenges that persist.

Phasing in TCFD and TNFD. Listed firms already need to produce disclosures aligned to TCFD and large firms will need to from next year. This shows in the proportion of partial and fully TCFD-aligned disclosures with several large firms preparing early. The Taskforce for Nature-related Financial Disclosures (TNFD) released its final framework in September 2023 and may be similarly phased in to mandatory reporting over time. However, only a small minority of firms appear to be exploring disclosures at present.

The sector's approach to climate targets ranged from ambitious, science-aligned commitments to vague aspirations with little accompanying evidence of planning.

Of those with a net zero target, 24 out of 33 targeted 2050. Interim targets are where credibility is built or broken. Notably, 88% of Operational Net Zero targets belonged to Banks and Building Societies with customer lending of less than £25bn. The larger Full Service Banks and Building Societies have distanced themselves from historic operational net zero targets in recent years, in favour of the scientific approach of absolute or intensity reductions. 39% of the cohort had at least one interim climate target. Only 4 institutions had submitted targets to the Science Based Targets initiative (SBTi) for validation — the bar for science-alignment.

Perigon's view: the direction of travel is right. What the sector needed was not more targets but more honest accounting of progress, more clarity on the pathways, and a more proportionate approach to what smaller institutions could realistically commit to.

Of the 51 institutions in the cohort, 43% were purchasing carbon credits described as 'offsetting'. Only 4% were purchasing credits using the more rigorous Beyond Value Chain Mitigation (BVCM) framing. 53% did not purchase any carbon credits.

The 'offsetting' problem. Carbon offsetting — the idea that you can neutralise your own emissions by funding reductions elsewhere — is not scientifically aligned terminology except where an organisation has already reduced emissions to a residual, hard-to-abate tail. Using it prematurely, particularly while making carbon neutrality claims, risks FCA anti-greenwashing scrutiny.

The BVCM distinction. Beyond Value Chain Mitigation acknowledges that purchasing high-quality credits is a positive additional contribution to climate action — not a substitute for reducing your own emissions. The largest banks were already moving towards BVCM language by 2023.