A new report criticises​ banks for doing too little on climate change but also gives examples of them getting it right. Brian Caplen assesses what lenders can do to maintain their environmental credentials.

Banks have every reason to take climate change seriously. A natural disaster could close down a financial centre, costing billions of dollars. Less dramatically, from both a business and a reputational perspective, they should be spearheading the transition from a high- to low-carbon economy (see blog). 

But a report from the socially committed investment manager Boston Common Asset Manager (BCAM) accuses banks of being “skin deep” in their commitment to combatting climate change and says their shortcomings could undermine the Paris Agreement.

They could always do more. But in my conversations with senior bankers, sustainable finance is at the top of their agenda. Even if their motivation is as much about fear of having stranded carbon-heavy assets on the balance sheet as it is about saving the planet, the all-important outcome will be the same.

BCAM’s main complaints, following a survey of 59 banks, are a lack of specific targets and a lack of disclosure. The asset manager calls on banks to disclose their climate risk in line with the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. It also urges banks to go beyond a narrow definition of carbon-related assets such as power to include carbon-intensive agriculture and sectors contributing to deforestation.

BCAM also complains that only just over half of the banks engage with clients in the carbon-intensive sectors on their plans. This is tricky, of course, because they are clients and maybe if society wants them to be greener they should be targeted directly rather than via the banks.

In any case, the BCAM report also contains examples of where banks are starting to get it right. They include PNC Financial’s exclusion of companies involved in mountain-top removal, HSBC’s policy of only financing the most efficient coal-fired plants and ING’s target to no longer finance utilities that are more than 5% reliant on coal. 

Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen

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