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(Bloomberg) — Financial analysts covering banks may not be equipped to catch the most relevant indicators of the sector’s exposure to climate risk, according to a report by Scope Group.

Analysts too often separate a bank’s climate and environmental risks from their main assessments, according to Sam Theodore, a senior consultant at Scope Group in London. And when they do try to measure its environmental, social and governance credentials, they frequently use green bond issuance when that overlooks the more important question of how the proceeds of securities are actually used, which “should be of more relevance,” he said in a report on Thursday.

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The way analysts have looked at banks’ ESG risks to date suggests the industry may need to brush up on its knowledge of climate science and new regulations, according to the Scope report. Scope is a provider of credit and ESG ratings.

Read More: Banks Get ESG Upgrades Despite Lending Billions for Fossil Fuels

“To look properly at the climate challenge for banks, analysts need to broaden their knowledge horizon,” Theodore said. That entails developing a deeper grasp of scientific concepts, ethical aspects, and understanding the dynamics of other industry sectors such as energy, power generation, manufacturing and utilities, he said. 

Bank analysts will also need to familiarize themselves with frameworks such as the Network for Greening the Financial System and the Taskforce on Climate Related Financial Disclosures.

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“Without working knowledge of the policy and scientific fundamentals of the climate and environmental challenges of the markets in which banks operate, analysts will be in a difficult position to properly analyze and challenge banks’ statements,” Theodore said.

Read More: Banks Handed New ESG Reporting Requirements by EU Watchdog

Banks in Europe will later this year need to disclose their so-called ESG Pillar 3 risk. By 2024, the industry will need to publish a green asset ratio (GAR) and an estimate of how well their business aligns with Europe’s green taxonomy, or BTAR. 

Based on how analysts responded to the introduction of similar ratios in the past, they will “start peer-ranking banks in accordance with GAR and BTAR and penalize laggards in both share prices and bond spreads,” Theodore said. “But more relevant as informative content would be the assessment of what is behind these ratios.” 

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