UBS to develop methods for monitoring lending impacts on environment and jobs

A consortium of banks, including UBS and Singapore's DBS on Wednesday, revealed intentions to develop a new method of assessing the environmental and social effects of their funding.

Banking for Impact, which also comprises ABN Amro and Danske Bank, will collaborate with Harvard Business School on the initiative, which aims to facilitate the transition to a more sustainable economy.

The new reporting requirements will mark the first time such measures on this scale have been undertaken in the banking industry.

The new group's goal is to create a new reporting system that measures the impact of loans that standard financial reporting does not capture. This might reveal, for example, if money supplied by banks was eventually used in a way that produced pollution or aided in the creation of employment.

“The world economy needs a market-based system where social and environmental impacts are just as transparent as financial profit metrics,” UBS Chief Executive Ralph Hamers said in a statement, Reuters reported.

Several firms have previously attempted to quantify such so-called "externalities," but there is presently no uniform technique, which would be critical in assisting investors to compare companies in the same industry.

By the end of 2022, the group expects to have established a new industry framework, including guidelines on how to measure customers' effects in financial terms. These indicators may then be used with financial metrics to help banks make decisions.

Robert Swaak, chief executive of ABN AMRO, said: “As a bank, we certainly have an impact on our stakeholders. If we understand our impact by measuring and reporting, we will also begin to understand where we can achieve the most positive impact and at the same time reduce our negative impact." 

Source: Reuters