Understanding climate-related disclosures of UK financial institutions

The Prudential Regulation Authority, PRA, has published a new working paper in which it presents the findings from voluntary climate-related disclosures of UK banks and insurance undertakings. The paper thereby specifically looks at
– the scope of the disclosures altogether;
– the comparability of the disclosures;
– the factors that seem to incentivize or keep firms to make these disclosures; and
– the possible impact of rules and regulations that REQUIRE climate-related disclosures.
It shall be noted that the PRA staff that has written the document only relied upon „firm’s reporting that is in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)“ and that it applied Natural Language Processing (NLP) techniques to retrieve the information needed to conduct the analysis. For performing this analysis, the PRA staff further used data from 2016 to 2020 of 35 UK banks and 34 UK insurance undertakings.
Some of the findings are briefly noted below; for more information, please consult the working paper itself:
– There is a significant effect of the publication of „Dear CEO letters“ which set out climate-related disclosure expectations and firms‘ scope of such publications.
– The key characteristic of a firm determining whether or not it is making climate-related disclosures seems to be its size. Other factors such as a firm’s ownership structure or its profitability do not seem to be correlated to making climate-related disclosures.
– Generally speaking, there is a clear trend towards making such disclosures, although there is still a large number of firms not disclosing any information at all. This holds true for both insurance undertakings and banks.