Big banks have a climate problem. Some do not have realistic long-term decarbonisation goals. Others were unwilling to limit their business with high-carbon customers. some bankers to have have tried to steer their employers towards a low-carbon future, with a keen awareness that climate risks are obvious, alarming and need serious attention – but are their colleagues listening?
What can be done to change banking practices so that climate risks are prioritized?
When it comes to exemplary efforts to lead the way to zero emissions, bankers are quite low on the list of climate movements and shakers. In March, the Securities and Exchange Commission (SEC) proposed: rule changes that would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including information about climate-related risks that could reasonably be expected to be a material impact on their businessresults of operations or financial condition, and certain climate-related financial statement statistics in notes to their audited financial statements.
The required information on climate-related risks also includes disclosure of a registrant’s greenhouse gas (GHG) emissions, which have become a commonly used measure to assess a registrant’s exposure to such risks. A bank that lends money to fossil capitalists – a company that produces major industrial activities, new ‘natural gas’ plants, coal-fired power stations, combustion engines and much more – should report the resulting emissions.
Environmental groups such as Sierra Club, Rainforest Action Network, and 350.org have made the debt of major banks transparent such as Pursuit, city, Wells Fargoand bank of Americaincluding for financing tar sands and other fossil fuels.
In May the carbon bankroll was released, a new report showing how corporate money and investment are major sources of emissions. Their results show how climate-conscious companies like Google, Meta, Microsoft and Salesforce actually misrepresent their carbon footprints — they don’t account for cash positions that banks use, at least in part, to fund fossil fuel development.
What is needed is a new approach to understand the nuances of climate banking, as outlined by the Harvard Business Review. By internalizing the reality that today’s financial world is amplifying climate chaos, companies might conclude that they cannot escape climate change unless they come up with solutions. These solutions could include new approaches to climate leadership strategies, organizational effects, funded emissions accounting, better public and media awareness of climate risks, splitting financial operations into emissions-identifying sectors, and pressuring banking partners to join the efforts to mitigate climate risks.
European banks in deep climate abyss
The European Central Bank (ECB) has a study this month found that banks in the eurozone are insufficiently prepared for climate risks. A stress test for climate risks showed that 60% of the 104 European banks surveyed failed to create the necessary frameworks that take into account climate risks. A spokesman for environmental organization Greenpeace called the results “shocking”.
These European banks have climate risks worth €70 billion on their books, which is a conservative estimate of the true climate-related risk. According to the results, most banks do not include climate risk in their credit risk models. In fact, only 20% of the banks surveyed take climate risk as a variable in lending at all.
Frank Elderson, Vice-Chairman of the ECB’s Supervisory Board, said that “this exercise is a crucial milestone on our path to making our financial system more resilient to climate risks.”
One module of the test focused on imminent losses due to extreme weather conditions. In the ECB’s view, modified framework conditions and a more orderly transition would significantly reduce banks’ financial risks. All in all, according to the central bank, nearly two-thirds of banks’ business revenues come from industrial activities, which are greenhouse gas intensive.
The results were so startling that the ECB itself announced its intention to decarbonise its bond holdings and make its monetary policy more climate-friendly.
Andrea Enria, member of the Governing Council of the ECB, told the German magazine manager magazine that banks in the eurozone should “urgently” step up their efforts to measure and manage climate risks. Banks are now expected to act decisively and develop robust frameworks for short- to medium-term climate stress testing.
Will a green financing strategy help to minimize climate risks?
Earlier this year, 23 employees from various banks in the US, Europe, India and Africa took part in the first session of a 6-month climate crash course for bankers, organized by the UK non-profit Finance Innovation Lab (FIL). The program, which concluded in March, was designed to nurture a corps of climate advocates within the middle ranks of mainstream banks. The participating fellows included officials from leading fossil fuel financiers such as Citi, Barclays and HSBC, who together learned about climate risks to the financial sector and delivered workshops to accelerate and improve the way the banks manage.
“There are many outsiders urging banks to divest from fossil fuels and invest in the energy transition, including regulators, activists and investors,” said Lydia Hascott, an organizational strategy expert at FIL who led the program. led. Quartz. “But there aren’t that many people who look at employees from the inside. Ultimately, it is they who must set a net-zero target and meet it.”
FIL approved the green financing strategy for 2022, which is a crucial opportunity to address an important missing part of the British Net Zero Architecture to turn London into a Net Zero Financial Center. The aim is to align public and private money flows with the government’s objectives in the areas of decarbonisation, adaptation and nature. The joint statement letter makes a collective call for the 5 principles to underpin the Green Finance strategy and ensure its success.
- Set out an ambitious, government-wide strategy for aligning financial flows with a 1.5C transition trajectory and adaptation and biodiversity targets that should be regularly assessed with independent inventory of progress and investment gaps in public and private financing.
- Support action on phase 3 of the government’s Green Finance Roadmap that actively shifts financial flows in line with a 1.5 C transition path.
- Play a key role for public investment and policy in driving a fast, fair transition and reducing energy demand.
- Establish a science-based, credible and robust legal and regulatory framework to drive and enforce the private sector transition to net zero.
- Set clear goals for international leadership and cooperation in the UK, based on principles of global justice.
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