Climate change and climate-related financial disclosures in the banking sector

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Abstract

The aim of the paper is to analyze sustainability report disclosures (Task Force on Climate-related Financial Disclosures [TCFD], 2017a, 2017b, 2019, 2020a, 2020b, 2021, 2022; AlHares & Al-Hares, 2020; Lagasio, 2019; Lucchese, 2020; International Sustainability Standards Board [ISSB], 2022) of the listed banks on FTSE Italia All-Share index of Borsa Italiana through text analytics (Giuliano, 2004). The research questions tend to verify: how and whether physical risk (acute and chronic) is reported; how and whether transition risk (legal, technology, market, and reputational) is reported; how and whether scenario analysis (The Bank of England, 2022; Rogelj et al., 2018) is conducted. Using Iramuteq (www.iramuteq.org) and SAS Viya (www.sas.com), the research combines unsupervised learning (Reinert, 1990) and supervised techniques (SAS, 2019) pointing out the inadequacy, the lack of transparency, and the lack of comparability of the sustainability reports that may increase the potential for uncertainty and financial instability. Disclosing climate information on a mandatory basis allows an increase in the quantity and quality of climate-related reporting, an increase in transparency, and comparability accountability, and provides clearer disclosures to investors and regulators.

Keywords: Climate Change, Disclosure, Transition Risks, Physical Risks, Scenario Analysis, Text Mining, Text Analytics, Unsupervised Learning, Supervised Learning

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: G10, G20, G30, K32

Received: 12.12.2022
Accepted: 28.03.2023
Published online: 31.03.2023

How to cite this paper: Aversa, D. (2023). Climate change and climate-related financial disclosures in the banking sector. Risk Governance and Control: Financial Markets & Institutions, 13(1), 70–94. https://doi.org/10.22495/rgcv13i1p6