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Banking on a Low-Carbon Future: Finance in a Time of Climate Crisis

Banking on a Low-Carbon Future: Finance in a Time of Climate Crisis is Boston Common’s fifth annual study of how global banks are managing climate risks and opportunities. It builds on last year’s report, which shifted emphasis from bank policies to implementation and action. The report found that the explosion of risk assessment tools and green banking industry initiatives in recent years has had little impact on commercial behaviour including the expansion of fossil fuel financing. The world is now facing a climate crisis, and global emissions are not expected to peak by 2030. The report concludes that “Time for incremental change is over. We need to see a transformation in the banking sector.” 

Scary, sad findings

The report found that in the 37 banks surveyed:

  • Climate strategy: Only two-thirds (67%) have adopted a group-wide climate strategy – up slightly from (58%) in 2018 
  • Risk management: More focus is needed with soft commodity clients, as only 16% of the banks have asked for no-deforestation policies and 14% aligned with certification standards such as the Roundtable on Sustainable Palm Oil 
  • Opportunities: Only 40% have publicly defined “low-carbon” or “green” products which should be a key focus, with green taxonomy frameworks being defined by the UK, EU and other industry bodies.

Report demands

The report calls on companies to:

  1. Transform corporate culture and mindsets
    1. Adopt group-wide climate strategies overseen by the board, with robust implementation throughout the organization from the C-Suite down to front-line managers.
  2. Change financing priorities and procedures 
    1. Adopt a clear strategy for decarbonizing balance sheets, including clear timelines for restrictions and phase-outs of financing for fossil fuels and deforestation
  3. Measure, report, reward
    1. Set explicit targets to increase the proportion of sustainable finance commitments relative to their overall financing activities, noting that 45% of banks have yet to set any such objectives
  4. Engage and collaborate
    1. Commit to making 2020 a “year of action” in alignment with the Paris Accord, focused on decarbonization goals and climate solutions.
  5. Speak! Use the company’s public voice
    1. Integrate public policy on climate into overarching climate strategy, engage trade associations on adopting progressive climate policies, and use the company’s public voice to promote progressive climate policy with governments and regulators.

The report’s final plea is:

  • As stewards of capital, we call for capital reallocation in support of new business models. 
  • We commend the leaders in this space but call for boards and managements to take on much more ambitious, decisive change.
  • This is necessary to manage the significant, imminent risks of climate-related risks affecting all businesses and assets they finance, while also enabling and profiting from the significant opportunities in society’s transition to a low-carbon future.

CTMfile take: There really is a climate emergency. What can corporate treasury departments do about it?

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This item appears in the following sections:
Best Practices & Benchmarking
Control & Compliance in Operations
Operational Risk Management
Treasury insights

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