Climate Action - Assisting business towards carbon neutrality

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The banking sector still has a long way to go in confronting the business challenges posed by global climate change, according to a first-ever report issued by the Ceres investor coalition that analyses climate change governance practices of 40 of the world’s largest banks.

The report found that a growing number of European, US banks and Japanese banks are responding to the risks and opportunities presented by climate change, primarily by setting internal greenhouse gas (GHG) reduction targets, boosting climate-related equity research and elevating lending and financing for clean energy projects. But many others are still not addressing climate change and only a handful of the 40 banks have begun integrating climate risks into their core business of lending by pricing carbon into their finance decisions or setting targets to reduce GHG emissions in their lending portfolios.

The shortcomings were evident in the report’s final scores. Using a 1- to 100-point scoring system, the two highest scoring banks were European-based HSBC Holdings and ABN AMRO with 70 points and 66 points, respectively. More than half of the 40 banks scored under 50 points, with a median score of 42 points.

“More banks realise that climate change is a big business issue, but their responses so far are the tip of the iceberg of what is needed to tackle this colossal global challenge,” said Mindy S. Lubber, president of Ceres, which published the report, Corporate Governance and Climate Change: The Banking Sector. “As a key provider of capital and financing worldwide, banks must do more to move the economy away from fossil fuels and high-carbon investments that are exacerbating climate change.”

The report employs a “Climate Change Governance Checklist” to evaluate how 16 US and 24 non-US banks are addressing climate change through board of director oversight, management performance, public disclosure, GHG emissions accounting and strategic planning. The report took six months to complete and uses data from securities filings, company reports, company websites, third-party questionnaires and direct company communications. Among the key scores:

The report provides much evidence that many banks are responding to climate change through equity research and new product offerings, with European banks being in the forefront and manyUS banks following closely behind. Many of the positive actions have come in the past 12 to 18 months, especially in regard to disclosure, internal emissions management and financial support for clean energy.

Yet for all of the positive momentum, many of the 40 banks have done little or nothing to elevate climate change as a governance priority – a trend that cuts across European, North American and Asian banks alike. For example:

• Only a dozen of the 40 banks have board-level involvement and all but one of those firms are non-US-based;
• Only a half-dozen banks say they are formally calculating carbon risks in their loan portfolios, and only one of the 40 banks – Bank of America – has announced a specific target to reduce greenhouse emissions associated with the utility portion of its lending portfolio;
• No bank has set a policy to avoid investments in carbon-intensive projects such as conventional coal-fired power plants or Canadian tar sands.

Read: Corporate Governance and Climate Change: The Banking Sector

Find company profiles and summary information on the Ceres website.