A new report examining climate management by 59 of the world’s largest banks has found urgent shortcomings that threaten to undermine efforts to support the transition to a low carbon economy. The report says that despite progress in some areas and several examples of individual best practice the sector is failing to capture the risks and opportunities of climate change.
The “Banking on a Low Carbon Future” report by Boston Common Asset Management, warns that in areas such as climate strategy, risk management and low carbon opportunities the banking sector is failing to embed climate into its core practices. The report supports the engagement letter — backed by over 100 investors with almost $2 trillion in assets under management — sent to over 60 banks last September asking about alignment with the Task Force on Climate-Related Financial Disclosures (TCFD).
The report finds that:
The report however does commend the sector for some high-level advances including:
“The Paris Agreement has started the race to the low-carbon economy and we need the world’s banks to pick up the pace to fund it,” Lauren Compere, Managing Director at Boston Common Asset Management said. “Some $12 trillion of investment is needed by 2030 in renewable power generation alone and that is a remarkable opportunity for the world’s banks that they are not currently grasping.”
The investor engagement, known as the “banking on a low carbon future” engagement, has been running since 2014 and this year’s analysis was the first to align its metrics with the new TCFD climate risk framework introduced by financial leaders Mark Carney and Michael Bloomberg. The report found that:
The investors call on banks to take four actions:
“Banks are one of the largest asset pools in the financial market and have a crucial role to play in the transition towards a sustainable financial system,” Shannon Rohan, Director of Responsible Investment, SHARE in Canada, said. “But so far their contribution is limited. In Canada, climate change is rapidly becoming a priority issue for banks; recently, we have seen some promising developments such as RBC setting out clear position statements on the importance of climate to its business and TD setting targets for increasing its low-carbon lending and financing. Yet none have conducted a scenario analysis for climate risk, and as with the rest of the global banking sector there remains a gap between the positive rhetoric of most banks and the internal processes and targets in place to achieve such goals.”
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