Barbara Strozzilaan 336
1083 HN Amsterdam
The Netherlands
gssbsecretariat@globalreporting.org

Item 03 – GRI Sector Standards
Project for Financial Services – Draft
project proposal
For GSSB approval
Date

4 October 2022

Meeting

18 & 19 October 2022

Description

This document sets out the draft project proposal to develop Sector Standards forthe banking, insurance and capital markets sectors respectively, for Global
Sustainability Standards Board (GSSB) discussion and approval to send to theGRI Board and Stakeholder Council for feedback.
The proposal is that these sectors have three separate Standards developed
within the bounds of one project. This responds to the commonality of these
sectors as financial asset holders and investors in other sectors, and the need totake a consistent approach to reporting on impacts that are relevant to anorganization as a result of this type of business relationships. After feedback fromthe GRI Board and Stakeholder Council has been received and incorporated, theStandards Division will present the proposal to the GSSB for final approval, inaccordance with the Due Process Protocol.
Please note: the development and submission of this draft project proposal marks
the intention for the GRI Sector Standards Project for Banking, Insurance andCapital Markets to be next to commence under the GRI Sector Program. Thecommencement date of this project has not been determined and is subject to theresource availability.

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Contents
Contents .................................................................................................................................................. 2
Project background ................................................................................................................................. 3
Sector overview ....................................................................................................................................... 3
Sustainability impacts.............................................................................................................................. 6
Project objectives .................................................................................................................................... 7
Division of responsibilities ....................................................................................................................... 7
Timeline ................................................................................................................................................... 8

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Project background

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In February 2019, the Global Sustainability Standards Board (GSSB) approved the GRI SectorProgram to improve clarity and consistency in sustainability reporting. The pilot projects, GRI 11: Oiland Gas Sector 2021, GRI 12: Coal 2022 and GRI 13 Agriculture, Aquaculture and Fishing 2022,
have been released and a fourth Sector Standard, for mining, is under development. The GSSB
approved two other projects, for food and beverages, and for textiles and apparel, in February 2022.

8910Banking, insurance, and asset management (now referred to as capital markets) are the next sectors
in line to have a Standard developed, according to the list of sectors approved by the GSSB inNovember 2020.

1112The Standards Division recommends producing three separate standards for banking, insurance, andcapital markets under a single project, titled ‘GRI Sector Standards Project for Financial Services’.

1314
15

Banking, insurance, and capital markets carry out distinct activities and operate under different
regulatory regimes; for this reason, each sector should be given enough room to tailor the reporting
recommendations to its own needs.

161718At the same time, the impacts that they contribute to, through their holding of financial assets, aresimilar and should be consistently reported across the three sectors. This is the key reason torecommend the development of the three sector standards under one single project.

1920

The stakeholder expectations are also very similar across the three sectors, and even the institutions
in which these stakeholders organize themselves usually cover all the financial services industry.

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Sector overview

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Financial services organizations are intermediaries between all other economic actors, channelingmoney from savers to borrowers, facilitating payments and matching people who want to lower risk
with those willing to take on that risk.

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The financial services industry is a substantive part of the economy in its own right; it contributes
about 5% of GDP in the European Union and more than 8% in the United States. But its realimportance lies in its central position in the economy, in which few activities could function withoutcredit, insurance, capital markets or payment services.

29Divisions within the financial services

303132
3334

There is a range of different sub-sectors and activities within financial services. There is no single
classification that captures all this variety, partly because the criterion to differentiate one activity fromthe other is often rooted in regulations that change from country to country and evolve over time.
There is also a fair amount of integration between the sectors, with many of the largest asset
managers owned by either banks or insurance companies.

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It is proposed to divide the financial services industry into three sectors: banking, insurance, andcapital markets. While the first two are perceived as individual sectors by most stakeholders, there isless agreement that the organizations grouped under capital markets belong together to a unified
sector. The recommendation from the Standards Division is based on similar sustainability impacts,
and the way organizations in these sectors are involved with these impacts, namely throughinvestment in other sectors.

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Below there is a detailed description of each of the three sectors, however, the scope and name ofthese standards may deviate from this proposal following recommendations from the technicalcommittees.

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Banking

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Banks are institutions that mainly take in deposits and make loans available. Consumer finance46

organizations - including credit card services, mortgage lenders, microfinance institutions and47

personal and student loan services - are also included into this sector.

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Investment banks are not included in the banking sector but will be covered within the scope of the49

capital markets sector.

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There are more banks than other financial institutions; they are also larger on average and have a51higher public profile. Banks are the organizations that most people deal with when in need of financial

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services and, therefore, have substantial, direct impacts on the welfare of most people.

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Table 1: Proposed sector key for the banking sector standard
Classification
StandardClassification
No.

Classification Name

GICS®

4010

BanksICB3010

Banks30201020

Consumer lending

30201025

Mortgage finance

641

Monetary intermediation

6491

Leasing6492

Other credit granting

FN-CB

Commercial Banks

FN-CFConsumer Finance

FN-MF

Mortgage Finance

ISICSICS®

5455
5657

Note: Tables 1, 2 and 3 lists the relevant classifications from external classification standards,
specifically the International Standard Industrial Classification of All Economic Activities (ISIC),
Industry Classification Benchmark (ICB), Global Industry Classification System (GICS), and SICS
Sustainable Industry Classification System® (SICS®)1.

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Insurance

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Insurance organizations offer risk management in form of insurance contracts.

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The insurance sector will include life insurers, health insurers, property, casualty and accident

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insurers, and reinsurers. Insurance intermediaries, such as agencies and brokers, while not providing

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insurance policies themselves, can have a large impact in the way the insurance sector operates, and63

they are included into this sector.

1 Sustainable Industry Classification System® or SICS® is the classification system of SASB.

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Insurance organizations can have distinct sustainability impacts because of the specific nature of theirproduct. They can help or hinder the development of certain activities by changing the conditions
under which they offer insurance. Their business model is directly affected by the physical effects ofclimate change.

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Table 2: Proposed sector key for the insurance sector standard
Classification
Standard

Classification
No.

Classification NameGICS®

4030

Insurance

ICB

3030

Insurance

ISIC

651

Insurance

652Reinsurance

662

Activities auxiliary to insurance and pension
funding

FN-IN

Insurance

SICS®
69

Capital markets

7071
72
7374

Organizations in this sector are concerned with the allocation of capital across the economy. This
sector is composed of asset owners, such as pension funds or sovereign wealth funds, asset
managers who make investment decisions on behalf of customers, and other organizations whoprovide services to these institutions, such as market operators, custodians, data providers, andrating agencies. Investment banks are included in this sector.

75Table 3: Proposed sector key for the capital markets sector standard
Classification
Standard

Classification
No.

Classification Name

GICS®

402040Capital Markets

402030Mortgage Real Estate Investment
Trusts (REITs)

4020

Diversified Financials

302020Investment Banking & Brokerage Services

302030Mortgage Real Estate Investment Trusts

302040Equity Investment Instruments

302050Nonequity Investment Instruments

30201030

Financial data and systems

642

Holding companies

643

Trusts6499

Other financial services activities

653

Pension funds

ICB

ISIC

SICS®

6611

Administration of markets

6612

Brokerage

6619

Other activities auxiliary to financial services

663

Fund management

FN-AC

Asset Management & Custody Activities

FN-EX

Security & Commodity Exchanges

FN-IB

Investment Banking & Brokerage

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Table 3 captures the variety of organizations that fall under this sector. The key criterion to groupthese organizations is that their main sustainability impact happens through the provision of capital toother economic sectors. Asset owners and managers take decisions on the allocation of capital
towards more or less sustainable activities. Service providers like investment banks or rating agenciesfacilitate these decisions and can therefore have an impact on the sustainability of the allocation ofcapital.

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Banks and insurers also have substantial sustainability impacts through capital allocation to otheractivities and this will need to be treated consistently across the three financial services sectors. Thisis the key reason why the Standards Division proposes to develop the three standards under a singleprocess.

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Sustainability impacts

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The key criterion for prioritizing sectors is their sustainability impacts. This takes into
account the significance of the sector’s impacts, considering their scale, scope, character andlikelihood. It also considers the size of the sector, the sector’s distribution around the world and thenumber of organizations from that sector that are in a position to use the GRI Standards.

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Based on this criterion, banking, insurance and capital markets have been selected because of thecentral role that they play in facilitating all economic activities, which translates into a crucial
responsibility for sustainability impacts across all sectors.

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When considering the sustainability impacts of these sectors, its useful to distinguish between thosecaused by organizations directly as a result of their activities and those that the organizations
contribute or are directly linked to through their capacity to allocate capital and provide insurance
services.

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Among the first ones, there are the impacts that organizations can have on their workers and theirdirect customers, as well as those related to their capacity to avoid tax or host corrupt activities. The
Standards Division research has identified financial inclusion, diversity and equal opportunity,
consumer privacy, anti-corruption, fair advice and transparent information and labor conditions asimpacts that can be material in these sectors. The second type of impacts are broader because thebusiness relationships of these organizations cover all sectors of the economy. They are also larger
because these organizations can determine the implementation of most economic activities throughthe allocation of capital and provision of insurance services.

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Of all impacts that organizations in these sectors contribute to through capital allocation, climatechange is by far the one that receives most attention. The Paris Aligned Investment Initiative (PAII),
one of the most relevant institutions in this field, states that the role of the financial industry in the109
110transition is to decarbonize investment portfolios and increase investment in climate solutions, in a
way that is consistent with a 1.5°C Net Zero emissions future.

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The project will consider other impacts beyond climate change, when providing recommendations fororganizations in these sectors to report on the impacts they contribute to through capital allocation.

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These impacts are provided to give a first indication of the scope of issues covered by the proposedproject. However, the topics recommended for inclusion within the Sector Standards for banking,insurance and capital markets will be determined by a multi-stakeholder process in accordance with
the Due Process Protocol and may diverge from those contained within this project proposal.

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Project objectives

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The primary objective of this project is to develop three Sector Standards that improve thesustainability reporting of banking, insurance, and capital markets organizations, making reporting
more complete and consistent across the sectors.

121These Sector Standards will:

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•

Identify and describe the topics that are likely material for a reporting organization in thebanking, insurance and capital markets sectors based on the sectors’ most significant
impacts.

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•

Provide evidence and authoritative references for these topics to assist organizations toidentify if they are material for them.

127•

Identify and list appropriate disclosures for reporting on those topics.

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As per the new GRI Universal Standards, organizations in the banking, insurance and capital markets
sectors that want to report in accordance with GRI standards will be required to use the applicable
Sector Standard.

131

Recommendations may also be made by the Technical Committee/s regarding:132•The scopes and names of each Sector Standard.

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•

The most effective way to include reporting on impacts that are contributed to or directly
linked via business relationships, such as through capital allocation, in Sector Standards.

135•

Other considerations that may be relevant to Sector Standards for related sectors.

136•Revisions or updates to other GRI Standards.

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Impacts identified within this project for which no GRI Standard exists will be assessed and prioritizedby the GSSB for future GRI Standards development.

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Division of responsibilities

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A technical committee (TC) will be formed to support the development of each Sector Standard.

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It is proposed that each TC will define the impacts that are caused by the activities of organizations intheir respective sector and identify the relevant reporting for these.

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However, given the overlap in the three sectors as investors in the activities and organizations ofother sectors, representatives of the three technical committees will cooperate to define the approachand reporting relevant for the impacts that organizations in these sectors will have through capital
allocation.

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This forum will also provide an opportunity to identify and discuss any misalignment between thescopes of the three sectors, or the descriptions and reporting identified for likely material topics thatare common across the three sectors.

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Each TC will be responsible for making the final recommendations on the development of eachStandard, however as part of their Terms of Reference, they will be obliged to work towards alignment
across the three Sector Standards.

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This arrangement is intended to provide for the representation of all stakeholders in the process, acoherent approach across the three sectors in describing and identifying relevant disclosures, and an
efficient division of labor to produce three separate standards.

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The Standards Division will draft the standards, and the GSSB will have oversight and final approvalover the standards before its release.

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The Standards Division will ensure coherence between the sector standards banking, insurance andcapital markets and any Standards approved or under development.

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The project will be conducted in accordance with the GSSB Due Process Protocol.

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Timeline

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The commencement date of this project has not been determined and is subject to resource
availability. Given that this project will develop three Sector Standards, it is expected that it will have alonger duration than other Sector Standard projects. Table 2, on the following page, outlines theanticipated project duration. The commencement date, along with the predicted dates of other key
milestones will be confirmed once known.

Barbara Strozzilaan 3361083 HN Amsterdam
The Netherlands
gssbsecretariat@globalreporting.org
Table 2: Estimated duration of Sector Standards Project for financial services 2

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2 Project scheduling changes may occur over the course of the project, including extensions to the duration of project due to approval processes or other circumstances.

This document has been prepared by the GRI Standards Division and is made available to observers at meetings of the Global Sustainability Standards
Board (GSSB). It does not represent an official position of the GSSB. Board positions are set out in the GRI Sustainability Reporting Standards. The GSSB isthe independent standard setting body of GRI. For more information visit www.globalreporting.org.

© GRI 2021