ShareAction is a UK-based charity that has been involved in responsible investment advocacy for 12 years. This December 2017 report is the latest stage in its efforts to promote engagement between investors in banks and the banks they invest in, and the banks themselves with their customers, especially those in high carbon activities.
The report is based on a detailed survey of the attitudes and actions of Europe’s 15 largest banks, looking ‘across the board’ at how they consider their own exposure to climate risks, how they respond to public policy and governance challenges, how they engage with their clients and external actors such as credit rating agencies, and what products they are developing to help capture opportunities from climate change for both themselves and their customers. A detailed scoring methodology based on the banks’ responses (with 100% of banks responding) then enables a ranking.
The report finds a distinct hierarchy emerging, with BNP Paribas a clear ‘winner’ and three French banks among the top 5 – an outcome ShareAction attributes to clear French regulation on climate disclosures via Article 173 of its 2016 Energy Transition Law. That said, BNPP’s score was only 66% of the best possible practice, while the average was 42%. At the lowest end of the scale were 2 banks described politely in the report as “Bystanders”: Unicredit of Italy and Lloyds Banking Group (till recently, of course, mainly owned by the UK government) on 27% and 23% respectively.
13 of the 15 banks had adopted a specific climate change strategy, the survey found, but “there is considerable variation in terms of the sophistication of the … policies and practices” contained within these. The same number of banks had committed to adopt the TCFD recommendations on disclosure but again “there are clear differences in the interpretation of these recommendations and TCFD ‘readiness’,” the survey found.
One clear issue for bank disclosure, however, is the lack of data they appear to have on their own activities. Only BNPP was able to estimate the proportion of its assets that are high-carbon (10%) – even then, the details are approximated, because of difficulties with taxonomy. Most banks were only able to provide a sectoral breakdown of their lending, and most had “no explicit objectives for decreasing exposure to high-carbon assets”. Similarly, only three banks said they are currently engaging with their clients on adopting the TCFD recommendations – and if their clients don’t follow these, the report points out, “this will seriously limit banks’ ability to do so themselves”.
Generally speaking, it seems, banks are better at engaging in discussions than action, scoring better on issues such as public policy and governance engagement than on risk assessment and concrete policy on reducing high-carbon elements of their portfolios. While most banks had policies limiting their lending exposure to high-risk sectors such as coal, oil and gas and forestry, these policies were mostly not aligned with the sub 2 degree goals of the Paris Agreement. Similarly, 13 of the banks had adopted policies on engagement with clients over climate issues, but “most of those policies do not set clear objectives and timelines, or detail what the consequences are if clients fall short”, ShareAction notes.
More positively, the report found that banks were increasingly looking to develop green products, mainly green bonds to date, but also green loans and deposits, and energy efficiency financing schemes.
Stop Press: A new report from Boston Common Asset Management on how 59 global banks are approaching climate change and finance finds “urgent shortcomings that threaten to undermine efforts to support the transition to a low-carbon economy.”