The Dutch financial services sector began reporting on the UN's sustainable development goals (SDGs) at an early stage. In this blog Joukje Janssen will discuss the differences existing between Dutch financial institutions in terms of how they have incorporated the SDGs into their activities and how they can be compared to the global financial services sector.
Joukje will also explore the opportunities offered by SDGs and how financial services providers can integrate them into their operations, from defining strategic goals to developing indicators to monitor progress.
SDGs - the global sustainable development standard
In 2015, the United Nations launched seventeen SDGs as part its 2030 Sustainable Development Agenda. These address the world's most urgent problems, such as climate change, inequality, health, education, and famine. Each goal comes with a specific ambition and underlying targets. The SDGs constitute the global standard for sustainable development, bringing together economic, social, and ecological challenges. The current decade (2020-2030) calls for significant public and private investment to achieve the SDG targets. By using and integrating the SDGs into their core activities, financial institutions can play a prominent part in this effort. Through their investment and financing policies, they can help shape future markets and economies, spurred on by sustainable finance legislation that requires them to actually work towards achieving those goals. The recently approved EU Taxonomy, scheduled to come into force in 2021, is in an example. A study by PwC shows how financial institutions in the Netherlands and across the globe have gone about incorporating the SDGs into their activities.
How do Dutch financial institutions perform comparatively?
Nearly all financial institutions in the Netherlands report on the SDGs
Nearly all banks, insurers, pension funds and asset managers in the Netherlands refer to the SDGs in their reports. Eighty-one per cent of financial institutions prefer to report on the SDGs in their (integrated) report.
Banks and insurers refer to the SDGs in their business strategy
Eighty-five per cent of banks and insurers refer to the SDGs in the section that discusses their business strategy and value creation model. As for pension funds and asset managers, 33% of respondents refer to the SDGs in the strategy section.
- Few financial institutions are committed to the underlying targets
Although there is a focus on the goals, hardly any of the financial services providers examined appear to be using the underlying SDG targets. Expressing a commitment to the SDGs is a first step but reporting on the underlying targets is, in my view, the next big challenge for the financial services industry. The 169 targets linked to the seventeen SDGs will help them to identify and define specific actions necessary to implement the goals and ultimately to measure progress.
How does the Dutch financial services sector perform compared with the sector worldwide?
Dutch financial institutions report on the SDGs more often
Dutch financial institutions pay greater attention to SDG reporting: nearly all of them refer to the SDGs in their report, compared with a global rate of 73%. In terms of reporting, Dutch institutions prefer an integrated report – separate from the annual report – whereas the global preference is for a separate sustainability report.
Dutch financial institutions refer to the SDGs in their business strategy more often
Dutch financial institutions (71%) refer to the SDGs in their business strategy more often than the sector does on a global level (33%). As such, the SDGs seem to have secured a prominent position in the business strategy of Dutch financials.
- Dutch financial institutions give greater focus to the SDGs selected
Dutch financial institutions on average report on seven SDGs, global sector: nine. A qualitative analysis shows that Dutch business strategies regularly feature a top 3 of SDGs. As such, actively managing and focusing on SDGs appears to be linked more realistically and more closely to the core processes of Dutch financial institutions.
Figure: Frequently cited SDGs
Reporting on the quantitative contributions made to the goals remains a challenge for the Netherlands and the rest of the world
Relatively few financial institutions publish quantitative information or report on specific contributions made to the SDGs. The percentage of Dutch financial institutions reporting on the underlying targets is in line with what we are seeing globally.
- The most frequently cited SDGs in the Netherlands and worldwide
Figure 'Frequently cited SDGs' shows a list of SDGs reported on most by Dutch financial services providers and the sector worldwide. Themes such as inclusive growth (SDG 8 - Decent work and economic growth) and climate change (SDG 13 - Climate action) have priority, both in the Netherlands and abroad. A total overview of all SDGs can be found here.
SDGs offer opportunities to financial services providers
Integrating the SDGs into their reports will provide financial institutions with the prospect of complying with upcoming legislation, encouraging innovation in products and services, and gaining a strategic edge by making choices in terms of the contribution that they wish to make.
- Legal compliance
By identifying individual SDG goals, financial institutions can adopt tangible actions to implement targets, set KPIs, and measure progress. It is essential to look ahead so as to ensure compliance with similar legislation and initiatives to which institutions have committed themselves. Take the implementation of the regulations, directives and guidelines set out in the EU Action Plan, which require asset managers to obtain clarity on investors‘ ESG preferences. By using the 169 SDG targets, they will be able to tailor their services to meet the focus of their investor clients.
Innovation in products and services
The targets will also help draw attention to the contribution across the product and services portfolio, especially the processes and data. As such, the SDGs can act as a structure on the basis of which financial institutions can review their core processes. For example, if they specifically select SDG targets that tackle climate change and equality, this will help risk management and the further rollout of good practices across the institution. The impact of extreme weather conditions and how products and services might help address that impact could, for example, be used in climate stress testing for insurers (e.g. TCFD in relation to Solvency II). I am also seeing strong policy documents being drafted on human rights. That said, implementation and data gathering remain weak points. Using SDG targets, financial institutions will be able to measure progress on those themes and at individual job level.Strategic edge
In addition to providing an internal structure, the SDGs can also help allocate assets within a portfolio. During the coronavirus crisis, we have seen that portfolios of this kind deliver better returns on average. They are also more resilient to economic shocks, probably because of their longer-term horizon and broader vision.
Integration of SDGs into operations
Financial institutions can integrate the SDGs into their operations, from defining strategic goals to developing indicators to monitor progress.
Strategy: incorporate SDGs fully from strategy to execution
Financial institutions often do not disclose their contributions to the SDGs fully in their report and instead describe them in a separate section. If they integrate the goals into the reporting set-up, they can quickly show where the SDGs impact their operations, which is crucial information for shareholders and other stakeholders. A Dutch development bank integrated the SDGs consistently in different sections of its annual report, from strategy to execution.
- Prioritising: Try to underpin targets and ambitions with quantitative data
Financial institutions prefer to underpin SDG targets and ambitions with qualitative information. Reports that describe both the positive and negative impact will present a more nuanced view. A next step would be to report on the ambitions and targets from a quantitative angle. A Dutch bank recently quantified the positive impact of three specific SDGs in euros. Reporting on prioritised goals is to be preferred over reporting on all SDGs. Although this will show how you are helping to make the world a better place, it will also blur the company's focus.
Method: Provide a clear description of the method used to prioritise SDGs
Many companies prioritise SDGs to give focus to a number of goals. However, companies that prioritise SDGs disclose little information on how they have gone about doing so. By presenting a clear description of the prioritisation process, the board can make complicated considerations transparent for shareholders and other stakeholders.
- Reporting: Include the SDGs in the value creation model
SDGs are often reflected in the value creation model, a straightforward instrument to show how goals have been classified.
About the study
To gauge the extent to which financial services providers are embracing and integrating SDGs into their strategy and activities, PwC has analysed the published reports of 200+ financial institutions worldwide, including seventeen Dutch banks, insurers, pension funds, and asset managers.
As part of the analysis, four main types of business report were studied: the annual report, sustainability report, statement by the CEO or board chairman, and the concise strategic report or integrated report. The key questions addressed by the study were:
Does the company refer to the SDGs?
Where does the company refer to the SDGs?
Does the company refer to any specific SDGs?
Does the company refer to any specific SDG targets?
Has the company embedded the SDGs in its business strategy?
How does it measure progress on SDG targets?
PwC has looked at how SDGs are referred to in the reports of financial institutions and how these institutions report on the measurability and strategic use of the goals. The different measurement methods applied can be found in PwC's ‘SDG Challenge 2019’. This study compares the level of detail at which financial institutions in the Netherlands and abroad deal with the SDGs.
Follow us
Contact us
