Banks and investors are taking a closer look because stricter requirements from regulators and market supervision are increasing the pressure on financial institutions and asset managers to take climate risks into account. Companies have to adapt to increasing demands from investors. Heidelberg Materials shows how systematic and transparent ESG reporting can become a competitive advantage.
CRR III, the third revision of the Capital Requirements Regulation, is the centerpiece of the European “banking package” to strengthen the resilience of banks. Together with the accompanying CRD VI (Capital Requirements Directive), it provides for new disclosure obligations for credit institutions and asset managers with regard to ESG risks, especially climate risks. Corporate reporting and investor relations must take this into account.
Continuous improvement thanks to systematic preparation
Heidelberg Materials, the largest global building materials manufacturer, proactively aligns its reporting of climate-related issues with investor requirements. Although the reporting obligations mean increased effort, the building materials manufacturer has gained valuable experience with its sustainability reporting to date. The first structures for transparent climate data were already created as part of the Non-Financial Reporting Directive (NFRD). In addition, Heidelberg Materials has been reporting on climate scenarios and in accordance with the requirements of the Task Force on Climate-Related Financial Disclosures (TCFD) for years. Potential impacts of climate change on the company are systematically analyzed and communicated – an aspect that investors are also increasingly demanding and appreciating.
This preparatory work makes it easier to adapt to new standards, but implementation remains challenging. Heidelberg Materials is concentrating on the practical integration of the new requirements: Systematic data collection, continuous monitoring of CO2 prices, the application of international frameworks such as the TCFD and an observation of the development of IFRS standards form the basis for this. At the same time, Heidelberg Materials is in close contact with investors and rating agencies in order to address the expectations of the capital market in a targeted manner. The topic of climate reporting is an ongoing task for Heidelberg Materials.
Increasing importance of ESG topics on the capital market
The importance of ESG topics has grown enormously among financial institutions and capital market participants in recent years. It is now standard practice for them to obtain a comprehensive picture of the sustainability performance of potential borrowers and to systematically integrate this information into business strategies, risk models and reporting processes. The climate area in particular is increasingly coming into focus: climate scenarios should help to better assess the resilience of business models to extreme weather events, stricter emissions trading or new political requirements and to understand the long-term risk profile.
The new disclosure requirements entail significant changes for banks and other financial institutions. Not only do internal processes for risk measurement and management need to be adapted, but cooperation with companies must also be intensified. Climate-related risks in particular can only be assessed properly if companies such as Heidelberg Materials provide reliable, comparable and comprehensible data. The effort required to provide this data in the necessary depth and quality is high and requires cross-divisional expertise – from controlling to risk and sustainability management through to IT and investor relations.
Transparency pays off: Climate reporting to build trust
Heidelberg Materials recognized early on that only a proactive approach to these issues can be successful. The development and communication of its own climate targets, the derivation of concrete measures, for example to reduce emissions, and the creation of reliable data structures form the basis. However, the high regulatory and market requirements affect all companies, regardless of size or sector. The new ESG requirements in particular – such as the disclosure of transformation paths, transition plans or climate-related opportunities – are increasing complexity.
In addition to regular external reporting, internal management is becoming increasingly important: climate and ESG management must be strategically anchored within the company. At Heidelberg Materials, sustainability is a top-down task. With the Chief Sustainability and New Technologies Officer as a member of the Management Board and the most ambitious climate targets in the industry, the course has been set for the transformation. Heidelberg Materials has identified specific net CO2 emissions as a key performance indicator relevant to management and has linked their development to the remuneration of the Management Board and the majority of employees entitled to bonuses. The development remains dynamic for Heidelberg Materials: new legal requirements, technical standards and market expectations require continuous training of the teams and adaptation of the reporting processes. The company relies on pragmatic solutions and exchange within the industry network, for example through initiatives such as Science Based Targets or committee work in associations.
The new requirements also offer an opportunity for investor relations: credible, comprehensible communication creates trust, responds to regulatory requirements and can help to positively influence access to financing or valuation on the capital market. Companies that demonstrate transparency, reliability and a sense of practical feasibility can set themselves apart from the competition through greater resilience, more favorable financing conditions and a stable investor base.
Key Takeaways
- Financial institutions and asset managers are increasingly demanding more climate transparency from companies due to regulatory requirements.
- Investor Relations has a great opportunity to secure trust on the capital market with transparent climate reporting.
- Heidelberg Materials shows how to score points with investors with transparent and comprehensive climate reporting.
This article first appeared in German in The Reporting Times des Center for Corporate Reporting.
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