SINGAPORE - Banks can help the world move towards a more sustainable future by adopting standards that allow them to report social and environmental considerations more fully, said a global consortium of financial institutions that includes Singapore's DBS Bank.
A report released by the group, known as Banking for Impact, on Wednesday (June 30) detailed their vision and outlined plans for how new reporting standards can be created for firms to measure their impact and value.
The alliance includes a unit of Harvard Business School, DBS, UBS Group, Danish bank Danske bank, Dutch bank ABN Amro and Impact Institute, a social enterprise pioneering new standards in integrated reporting.
The report on Wednesday came about one month after the Monetary Authority of Singapore said that it will be allocating about US$1.8 billion (S$2.4 billion) of Singapore's official foreign reserves to five asset managers for climate-related investments. It will also be consulting the financial industry later this year on mandatory climate-related disclosures.
The consortium said in a statement: "Financial firms need new reporting rules that pull positive and negative externalities like job creation and pollution into standard practices to provide a well-rounded picture of how they create true value."
By adopting new standards to measure their impact, firms can be fuelled to make more sustainable economic decisions, they added.
Recent research by Harvard studying 1,800 public firms also showed that there was a significant relationship between negative environment impact and lower stock market valuation.
This underscores the strong business case for greener business models, the consortium said.
DBS Group chief executive Piyush Gupta said: "Financial accounting is a useful means of measuring performance. Unfortunately, its prism tends to be narrow, and it misses out on several critical impacts that economic actors have."
He added that as the world increasingly accepts the role of firms in catering to multiple parties, not just shareholders, it becomes vital to create a better scorecard that takes into account non-financial impact.
The paper noted that organisations today deal with two separate and disconnected systems - one for financial performance and one for non-financial factors such as the environmental and social performance.
"The inability to integrate impact on people and planet into decision-making and performance evaluation creates the real risk of undervaluing the companies that take a multi-stakeholder perspective and do good and overvaluing the ones that do not," it said.
It proposes a system that can measure impact in quantitative units, while also translating the impact into monetary value. Firms also should be responsible for indirect impact along the value chain, such as a company that invests in a coal plant.
Lastly, this information has to be combined so it can impact overall decision-making, the paper said.
UBS Group chief executive Ralph Hamers added: "Measuring previously unreported elements will help the private sector tackle critical societal challenges such as climate change and inequality.
"The banking sector, with the ability to appropriately price social and environmental risks, is well positioned to lead this transition."
Impact Institute executive director Adrian de Groot Ruiz also agreed that banks can help to build the economy of the 21st century.
"They play a pivotal role in building the impact economy, where work, entrepreneurship, innovation and technology are dedicated to creating a positive impact on the world."
Mr Ronald Cohen, chairman of the Global Steering Group for Impact Investment, said: "The sooner banks embrace impact measurement, the sooner they can meet rising expectations for responsible behaviour.
"Impact transparency will focus banks on providing solutions for people and planet, rather than financing the creation or aggravation of problems."