CSRD implementation benchmark for banks

CSRD implementation roadmap

Over the next year, until early 2025, all larger banks must complete broadly similar steps on a CSRD implementation roadmap:

• Set vision and ambition (embedded in a double materiality assessment);
• Deal with regulatory disclosure requirements linked to CSRD (for instance, through an ESRS gap assessment);
• Redefine processes, data and IT;
• Set up or modify a governance and controls framework;
• Ensure assurance readiness; and
• Integrate CSRD into the annual report and align with other ESG related disclosures (e.g. humans rights reports, climate reports, pillar 3 ESG, etc).

However, across the banks we engaged with, there is a high degree of variability in terms of approach and progress. This is perhaps unsurprising given how new these requirements are, and how open to interpretation some of the guidance is.

Some programme managers will start 2024 having completed their double materiality assessments and ESRS gap assessments, and will have a clear plan for implementing the remaining steps. However, if you still have work to do to determine robust and consistent KPIs, and are still working on finalising your (detailed) implementation plans, you are not alone. Our findings suggest that many banks are heading into 2024 feeling the pressure to tie up some (or even more) loose ends.

Programme governance and effort

CSRD implementation involves significant numbers of people with diverse capabilities. Our benchmark shows that the progress made by most banks so far has been achieved by relatively small teams managing larger groups of stakeholders across banks and supply chains. The effort planned for the next steps of the implementation is far more substantial. Structural changes are required to build data systems and underlying processes and controls to report properly. Some of the larger banks are budgeting dozens of new FTE to undertake this work.

A noteworthy strategy being adopted by some banks is to take a cross-functional approach to planning and resource allocation. Skilled personnel are scarce in the market, and there can be a temptation to ‘poach’ the best resources from other internal functions. Better is to collaborate, carefully planning how best to utilise certain people at certain times over each step towards CSRD compliance – an approach that has the added benefit of building collective knowledge over time.

In terms of governance, we see a pattern across most banks of Sustainability functions having led on double materiality assessment, but having the responsibility shift towards Finance functions to further implement reporting – as well as the increasing involvement of the (ESG) Risk function. This is to be expected, as all these different capabilities are needed, in line with the CSRD/ESRS building blocks of disclosure about targets, policies, actions and metrics. Where we observe more differences is in the degree of centralisation and ownership. As a relatively new topic, we see some banks involving many experts in an advisory capacity, which can be efficient in terms of knowledge-sharing but confusing in terms of decision-making. The level of integration with other ESG transition or reporting programmes also varies – particularly at the bigger international banks, at which we observe some challenges in alignment between parents and subsidiaries (which sometimes operate different methodologies, resulting in different outcomes).

Double materiality assessment

Here, both methodology and outcomes vary. Some banks have sought to align with previous materiality assessments, whereas others have taken a more blank-sheet approach. Some banks conducted their materiality analysis in close alignment with the ECB guide on climate-related and environmental risks, whereas others are choosing to seek alignment afterwards.

Overall, banks that have managed to determine clear criteria for materiality up front have been able to conclude the analysis more quickly. Some have struggled in their process to get from a long list to a short list, because (clear) thresholds had not been set up front, and decisions are still driven more by qualitative than quantitative factors.

Expert-driven assessments have frequently led to longer lists of material topics. Banks at which Finance has taken a leading role in the materiality assessment often have shorter lists, presumably caused by more emphasis on the reliability of what needs to be reported.

Although some banks have designated all ten ESRS topical standards as material, most have focused on around five to seven standards for upcoming reporting cycles. Within those, there are patterns and alignments emerging. Certain topics, such as climate change (E1), are considered material by all banks. Own workforce (S1), consumers (S4) and business conduct (G1) are nearly always material. Outcomes for all standards should and indeed do reflect the nature of each bank’s unique business model. For example, pollution (E2) and biodiversity (E4) are frequently material among banks with larger agricultural portfolios.

There is some subjectivity about these classifications. What all banks have in common is that the decision to label a topic as material or not has been the subject of passionate multi-disciplinary discussion.

Looking ahead

The process so far has at times been fraught and bruising. This is to be expected for a new and complex topic such as CSRD. Even some of renowned financial institutions have found themselves, at times, tangled up. Simple matters, such as getting clear on data definitions, have often been problematic.

There is light at the end of the tunnel. Jurisdictions – e.g., France – where banks have had mandatory assurance over their ESG reports for some time are finding it easier to adapt to regulatory requirements brought by CSRD. Future reporting cycles will be easier than your first.

Deloitte can give you a boost to your CSRD implementation, by working with you and applying these lessons learned. Getting it right will provide your bank with meaningful insights and control to steer the business towards a sustainable future.