Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. Print
July 25, 2016 01:00 AM

Banks need to respond faster on climate

Urgency for financing to flow to green projects

Lauren Compere
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Lauren Compere is director of shareholder engagement, Boston Common Asset Management LLC, Boston.

    If there is one thing most banks can agree on, it's that very few like uncertainty. For many years, banks have also been claiming that it is uncertainty, especially on the direction of global regulation, that has prevented them from acting decisively on climate change. However, things have changed.

    The signing of the Paris Agreement in December and ratification by 19 countries already has put the world on a clear trajectory toward an economy that will keep the rise in global temperature to no more than 2 degrees Celsius above preindustrial levels. A challenging target given that last year, the temperature rise already surpassed the 1-degree threshold, according to data Nov. 9 from the Met Office, the U.K. government's weather service.

    The uncertainty has been removed. Yet banks still remain slow to respond.

    Banks in the firing line

    New research released in June from four non-governmental organizations — San Francisco-based Rainforest Action Network; Oakland, Calif.-based Sierra Club; Washington-based Oil Change International; and BankTrack, based in Nijmegen, the Netherlands — suggested that by pumping billions into extreme fossil fuels, the world's biggest banks are shortchanging the climate by investing heavily in companies whose long-term success depends on runaway climate change.

    “Shorting the Climate,” a report on the organizations' research, highlighted $307 billion of financing from major banks of oil projects it classifies as extremely damaging to the environment, such as the Arctic, tar sands and ultra-deep offshore developments. Using the oil reserves from these developments could make it almost impossible to keep within the 2-degree Celsius limit set in Paris, therefore presenting the highest level of financial risk.

    Banks not all bad

    However banks are not guilty of all charges. A landmark report covered in Pensions & Investments, Oct. 22, 2015, examined 61 of the world's largest banks on their management of climate-related risks and found positive trends, too.

    Australia and New Zealand Banking Group set a target to increase lending to gas and renewable power generation by 15% to 20% through 2020. Bank of America Corp. has made a commitment to finance $20 billion of new climate mitigation, adaptation and energy-efficient technologies and Citigroup Inc. has successfully directed $54 billion toward climate change-related opportunities.

    Wells Fargo & Co. also showed some best practice by disclosing that renewable energy projects owned in whole or in part by the bank produced 11% of U.S. solar photovoltaic and wind energy generation in 2013.

    I along with other institutional investors are seeing leadership in places such as U.S. regional bank PNC Financial, which has adopted annual environmental stress tests. The first in 2015 analyzed the regulatory impact of the U.S. Environmental Protection Agency's clean power plan on its coal and utilities portfolios. In Canada, TD Bank Group has begun to embrace climate change as a real economic opportunity, as well as a risk. The bank became carbon neutral in 2010, while concurrently investing in green buildings, energy efficiency and renewable energy sources alongside financing an industry-leading $500 million green bond.

    These responses are encouraging but, taken together, form only the tip of the iceberg of what is needed to tackle this enormous global challenge. The world's 20 largest banks, representing more than $2 trillion in market capitalization, are crucial players in combating the impact of climate change.

    What action should banks take?

    First off, banks need to a better job of monitoring and managing their carbon risks. They should assess the carbon risk of their lending and underwriting, conduct climate-related stress tests and start measuring their carbon footprint. Banks need to reduce uncertainty for themselves and their clients by starting to think about climate change as one of the most important parts of their global strategy, rather than a variable on the periphery.

    At the same time, if they are to remain competitive in the marketplace, banks need to very quickly grasp the full potential of green financing. According to Dimitris Tsitsiragos, vice president, global client services, International Finance Corp., Washington, an estimated $1 trillion is needed annually for climate-aligned investments, including $450 billion for countries outside the Organization for Economic Co-operation and Development. The Climate Bonds Initiative, an investor-focused not-for-profit based in London, estimates that labeled green bonds issued globally in 2015 represented less than 1% of total U.S. dollar bond issuance and less than 0.2% of debt securities issued globally.

    More tools are available for banks to make the changes required.

    For example, bodies such as the Washington-based World Resources Institute, the Geneva-based U.N. Environment Programme's Finance Initiative and Paris-based NGO 2 Degrees Investing Initiative recently provided new guidance on strategies and metrics to help the financial sector align with the 2-degree pathway, while the Financial Stability Board's Task Force on Climate-related Financial Disclosures is focused on corporate financial disclosures related to both physical climate risks (such as flooded land and droughts) and non-physical climate risk (such as changes to regulation, technologies or litigation). There is even discussion at the European Union level of carbon stress testing being considered for financial sector actors.

    Conclusion

    The landmark agreement signed at COP 21 Paris climate summit last year has succeeded in clearing much of the regulatory uncertainty that has held back low-carbon financing. Banks should respond and set a defined path to navigate through climate-change risks and embrace climate-change opportunities.

    Some have made positive steps, but there is an urgent need for financing to flow faster and at greater volume away from fossil fuels and into energy efficiency and other low-carbon projects.

    We must heed the words of Mark Carney, governor of the Bank of England: “The challenges currently posed by climate change pale in significance compared with what might come. ... In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”

    Banks need to get on with it.


    Lauren Compere is director of shareholder engagement, Boston Common Asset Management LLC, Boston.

    Related Articles
    Investor group pushes G-20 countries to hike clean-energy investments
    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    Gender diversity is improving on FTSE 350 boards
    Gender diversity is improving on FTSE 350 boards
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    OCIO: Steady Hand at the Wheel
    Sponsored Content: OCIO: Steady Hand at the Wheel

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Middle market credit: We’re gonna need a bigger boat
    Alternative Credit: Differences and Opportunities in CLOs and Credit Risk Shari…
    Fixed Income is Attractive, but Beware of "Fake" Yield
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    Biodiversity: why investors should care
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income