3E Intelligence

As one of the world’s biggest economic sectors, banks should play a leading role in the mitigation and adaptation actions needed to stop global warming. But a new report presented on 9 January by CERES, a US-based coalition of investors and environmental groups, shows that the banking sector’s climate actions to date are only “the tip of the iceberg of what is needed”. CERES and its research partner RiskMetrics Group looked at 40 of the world’s largest banks (16 American, 15 European, 5 Asian, 3 Canadian and 1 Brazilian banks) and how they deal with the business implications of climate change.

Let’s look at some of the main positive findings of the report:

  • The banks are doing lots of research on the issue (more than 100 report, of which half written in 2007), so the awareness is clearly there;
  • 34 of the 40 banks have responded to the annual survey conducted by the Carbon Disclosure Project, an NGO which reports on businesses climate risks;
  • Only 24 banks have their own emission reduction targets;
  • 29 banks have invested in alternative energy projects (renewables or clean energy)

That being said, “many of the 40 banks have done little or nothing to elevate climate change as a governance priority”, says the report:

  • only a dozen of them have board-level involvement in climate change;
  • only 14 have risk management policies or lending procedures that address climate change in a systematic way;
  • only half a dozen calculate carbon risk in their loan portfolios;
  • only one bank (Bank of America) has a specific target to reduce the rate of carbon emissions associated with the utility portion of its lending portfolio;
  • no bank (yes zero) has a policy to avoid investments in carbon-intensive projects such as coal-fired power plants. So much for our low-carbon economy goals 🙁

The report has four recommendations:

  • make climate change a governance priority for board and CEOs (maybe bank directors bonuses should be based on carbon reduction targets?)
  • provide better information about the financial and material risks posed by climate change and about own targets and emissions from financing and investments;
  • explain how they factor carbon costs into financing and investment decisions;
  • set higher targets to shrink the carbon footprint of their lending and investment portfolios.

Last but not least a bit of “naming and shaming”. The report also includes a “Climate Change Governance Index”, an evaluation of the climate security activities of the 40 banks based on a set of 14 indicators. HSBC Holding PLC, ABN Amro and Barclays PLC take top three, with Deutsche Bank, Citigroup and Fortis also in the top ten, European companies which are doing less well are BNP Paribas, CrĂ©dit Agricole and SociĂ©te GĂ©nĂ©rale (shame on my home country again …). In general, European banks score better than American ones.

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