Home » Discretion vs transparency in banks reporting: time to raise the bar

Liad Ortar

Discretion vs transparency in banks reporting: time to raise the bar

November 2016 User View by Liad Ortar, Head of The Corporate Social Responsibility Institute, College of Law and Business, Ramat Gan – Tel Aviv, Israel

ONE would expect leading financial institutions to make a strong effort to uphold high standards of external reporting, while at the same time maintaining the principle of discretion in their reporting processes. Yet the principles of transparency and discretion contradict one another, a contradiction that revolves precisely around the principle of materiality. This is especially evident if one views materiality in a more inclusive sense, compared to the traditional approach of financial accounting with its focus on financial statements.

The above dilemma applies to both the more rules-based approach of the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) versus the more principles-based approach of the Global Reporting Initiative (GRI) in defining materiality with reference to non-financial reporting.

In recent research we compared disclosures by leading financial institutions to compare how they describe their materiality decision-making processes and also what they report as their material issues. Using content analysis software and manual analysis, we surveyed 22 sustainability reports (SRs) from the five largest banks in the world, reports published over the period 2008 – 2012. The five-year period was decided upon in order to include pre-2008 crisis reports to determine whether the financial crisis had any impact on the reports. The selected sample was ICBC, HSBC Holdings, Deutsche Bank (DB), BNP Paribas and Mitsubishi UFJ Financial Group.

We found that the examined reports were lengthy and it was extremely difficult to conduct a comparative analysis between them. All the banks presented very strong declarations related to their commitments to sustainability and important global initiatives. Yet their attitude toward the disclosure of materiality issues is not in line with their declarations. Our main insights included the following:

  • All of the banks examined present an internal decision-making process used to define their material sustainability issues. External expectations taken from any kind of stakeholder dialogue exercise are rarely presented and play no concrete role in the reporting process.
  • The banks join international social responsibility initiatives such as the UN Global Compact and the Equator Principles. Still, the adoption of commitments under these initiatives has limited influence on their reporting from a materiality point of view.
  • Of the 22 reports surveyed, only one presented a materiality matrix as defined and 
explained in the GRI Guidelines.
  • There is currently no widely accepted reference for materiality decision-making procedures, nor is there a globally accepted glossary of sustainability terms and issues. The GRI Performance Indicators could be considered such a resource. However, the suggested material issues as they appear in the reports examined are of a much broader scope not fully compatible with the GRI indicators.

The reports examined were not at all similar to one another, and thus it was very difficult to compare them. Although the latest reports did include a GRI index that can be used as a reporting navigation tool, the task of comparing the reports remains extremely challenging.

The analysis confirmed our hypothesis that since the financial sector is seen as a discreet one, not freely disclosing internal processes, its materiality approach would reflect globally accepted reporting requirements yet maintain minimal external engagement with stakeholders. The sustainability reports by banks were found to be at a minimal level as far as external stakeholder engagement is concerned, keeping voluntary disclosure only at a bare minimum.

Today, a global increase in the number of policy and regulatory initiatives for non-financial reporting is apparent. These are captured by the Carrots & Sticks online database of KPMG and its partners (see, one that highlights disclosure requirements targeting especially the financial sector. Needless to say, reporting financial institutions have their concerns regarding the various (and sometime conflicting) frameworks they are expected to use or are obliged to comply with. It is in the interest of globally operating financial institutions to see an alignment and harmonization of disclosure frameworks.

As report audiences are diverse and expected to grow (especially among the investment community), discussion on the credibility of sustainability data will increase. 
As non-financial reporting becomes increasingly regulated and less voluntary, it is crucially important for leading global institutions that endorse sustainability reporting to decide upon a global set of accepted, sector-based Performance Indicators. Initial progress in this direction has been made with the sector-based guidance for the financial sector issued by both the GRI and SASB. Yet progress in their take-up remains to go to scale.

As our analysis of reporting by banks have shown, the current situation in which materiality is used as a flexible principle, defined and redefined by the reporting institutions themselves, will probably not result in the quality of reporting expected by diverse external stakeholders.

Addressing this will require recognition of a fundamental difference between materiality as defined by conventional financial accounting standards versus its definition in non-financial reporting standards. In financial accounting, materiality directs the accountant to include in the periodic report any performance indicator that might influence the value or financial outcomes of the company. In sustainability reporting on the other hand, materiality entails a different process more oriented towards the views of diverse stakeholders.


This article is based on Ortar, L. (2016) ‘From flexibility to specificity: practical lessons from comparing materiality in sustainability reports of the world’s largest financial institutions’, Int. J. Corporate Strategy and Social Responsibility, Vol. 1, No. 1, pp.44–64. The author can be reached at:   


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