World’s Top Banks Making Progress to Reduce Climate Risk

(3BL Media/Justmeans) – Since the COP21 climate summit in Paris, climate change has risen up the agenda in the corporate and financial sectors. Leading banks and financial institutions are now seeking opportunities in sync with the global climate goals. However, there is an urgent need for many banks to review policies and strategies in order to make a deeper contribution to climate risk mitigation.

A new report examining 28 of the world’s largest banks on their management of climate-related risks appreciates banks for introducing measures such as climate stress testing, carbon foot-printing and governance for climate risk. But the report also urges the banks to recognize the urgency and institutionalize management of climate risk or opportunities at the rate required.

The report, backed by investors with $500 billion in AUM and led by Boston Common Asset Management, is a follow up to the 2015 report “Are Banks Prepared for Climate Change?”. The current investor analysis highlights the notable progress made by some of the leading banks over the last year.

More than 70 percent of responding banks now undertake carbon footprints or environmental stress tests, including banks such as Citigroup. Furthermore, 85 percent of responding banks disclosed financing or investment in renewable energy. For instance, National Australia Bank plans to invest AUD 18 billion over seven years in energy efficiency, renewable energy, and low-emissions transport.

More than 80 percent of the banks have adopted more explicit oversight of climate risk at board level; and almost two-thirds have established performance goals. Some banks, such as Credit Suisse, are now revising their policies to restrict lending to the coal mining and thermal power generation sectors. Others such as Standard Chartered are developing additional assessment criteria on climate risk for energy sector clients.

However, with the implementation of the Paris Agreement, banks still need to do more to embed climate risk into their assessment of credit, and take full advantage of the opportunities the low-carbon transition presents. Four in five responding banks are not yet integrating the results of environmental stress testing into their business decisions. Only about half of the banks have explicitly linked climate strategy goals to executive compensation.

Boston Common commends the willingness of the largest global banks to hold in-depth discussions and advance the dialogue around climate risk. More than 80 percent of the banks engaged have implemented substantive policy changes since the end of 2015 related to climate risk. However the core conclusion of the report is that the banking sector as a whole needs to do more to measure and manage climate risks, which is a key concern to investors.

According to Lauren Compere, Managing Director at Boston Common Asset Management, investors are very pleased to see the new tools, policies and programs that banks are adopting to manage climate risk, but there remains room for improvement and serious issues of integration that must be resolved.

Source and Image: Boston Common Asset