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Analysis of ESG disclosures in Pillar 3 reports. A text mining approach

Author

Listed:
  • Ángel Iván Moreno Bernal

    (Banco de España)

  • Teresa Caminero García

    (Banco de España)

Abstract

Disclosure of prudential information on environmental, social and governance (ESG) risks will become mandatory from June, 2022 for large institutions with securities traded on a regulated market of any Member State. This paper tries to assess how prepared European financial institutions are for this requirement and applies text mining techniques to analyse the prudential reports, commonly referred to as Pillar 3 reports, for 2019 and 2020 of most of the significant banks under the ECB direct supervision in order to evaluate the level of awareness of these institutions in relation to the materiality of ESG risks. By applying a simple taxonomy of terms based on lexicons and regular expressions using a tool that we have developed, we are able to identify relevant excerpts with a high level of precision searching for different combinations of concepts within the taxonomy of terms. The results indicate that although there is an increased awareness of the ESG risks, with a significant increase in smaller institutions (those with less tan 30 billion in assets), the level of detail included is generally low and the introduction of the new ESG mandatory disclosures should have a significant impact on the level of disclosures in this area.

Suggested Citation

  • Ángel Iván Moreno Bernal & Teresa Caminero García, 2022. "Analysis of ESG disclosures in Pillar 3 reports. A text mining approach," Occasional Papers 2204, Banco de España.
    • Handle: RePEc:bde:opaper:2204
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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/22/Files/do2204e.pdf
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    More about this item

    Keywords

    ESG; environment; social; governance; sustainability; climate change; carbon emissions; environmental risks; physical risk; transition risk; natural language processing; Pillar 3;
    All these keywords.

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other

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