Assessing the data challenges of climate-related disclosures in European banks. A text mining study
Series: Working Papers. 2326.
Author: Ángel Iván Moreno and Teresa Caminero.
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Summary
The Intergovernmental Panel on Climate Change (IPCC) – a United Nations body responsible for assessing the climate change science and producing comprehensive assessment reports on climate change, its impacts, future risks, and strategies to mitigate its progress – estimates that global net zero should be achieved by 2050. To this end, many private firms are pledging to reach net-zero emissions by 2050. The Climate Data Steering Committee (CDSC) is working on an initiative to create a global central digital repository of climate disclosures, which tries to address the current data challenges.
This paper assesses the progress within European financial institutions in addressing the data challenges outlined by the Climate Data Steering Committee (CDSC), which was established in 2022 with the aim of supporting the climate objectives of the United Nations regarding high-quality climate data. Using a text-mining approach, coupled with the application of commercial Large Language Models (LLMs) for context verification, we calculate a Greenhouse Gas Disclosure Index (GHGDI), by analysing 23 very granular disclosures in the ESG reports between 2019 and 2021 of most of the significant banks under the ECB's direct supervision. This index is then compared to the score given by CDP. The results indicate a moderate correlation between institutions not reporting to CDP upon request and a low GHGDI. Institutions with a high CDP score do not necessarily correlate with a high GHGDI.