Major banks failing to align climate strategies to Paris Agreement targets

That is the overarching view of a new report from Boston Common Asset Management (BCAM), and backed by investors with assets totalling $500bn, which examined 28 of the world’s largest banks in regards to climate related-risks.

The report found that the 28 banks, which include Barclays, Citigroup, HSBC Holdings and ING, have made steps to improve disclosure and stress test methods in relation to climate impact, but that these methods were failing to bring about tangible change.

While more than 85% of respondents currently disclose financing and investment into renewable energy, only 35% have disclosed goals for energy efficiency financing and less than 40% have targets in place for renewables funding.

The report found that 80% of the banks are failing to integrate the results of environmental stress tests into decision making processes, despite 70% introducing new stress tests and 80% adopting “more explicit oversight” of climate risk at board level. The report also noted that half of the respondents are actively linking climate strategy to executive compensation.

“From stress tests to strategy, bonuses to benchmarks, 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,” BCAM’s managing director Lauren Compere said. “It makes little financial sense that bank financing of carbon intensive sectors such as coal – likely to become stranded assets, still outpaces green financing.”

Boston Common noted that it was encouraged with the market progress of these banks in addressing climate change, alluding to divestment scenarios involving Credit Suisse. Divestment has undergone a change of pace in recent years, with German insurer Allianz, French investor Caisse des Dépôts and French insurance corporation CNP Assurances making big commitments to reduce the coal exposure of more than €865bn of assets.

But with the Paris Agreement now entered into force, the report notes that banks are failing to take advantage of the low-carbon transition. The banks were criticised for a failure to measure and manage risks found in carbon intensive sectors, while the report has called on the firms to establish targets to reduce exposure to these sectors; instead aiming to funnel investment into renewables and energy efficiency.

The report also called on the banks to support large-scale collaborative efforts, such as the Task Force on Climate-related Financial Disclosures – which recently called on senior management to take control of climate-related issues – in order to use their public voices to encourage the introduction of government policies that are aligned with the Paris Agreement.

Dirty bankers

The report arrives on the same day (17 January) that Greenpeace International released a new report outlining that HSBC allegedly formed part of a funding syndicate that offered $16.3bn in loans to six palm oil companies accused of destroying vast areas of rainforest and peatland in Indonesia.

Sustainable sourcing of palm oil has proved a major challenge for firms attempting to strengthen supply chains. The world’s second largest palm oil plantation company has revealed that it is engaging with individual supplier mills which have allegedly been using ‘tainted and illegal’ palm oil sources, while Greenpeace has also criticised the likes of PepsiCo, Colgate-Palmolive and Johnson & Johnson for palm oil sourcing contracts.

The allegations aimed at HSBC claim that the available funds have been used by palm oil contractors that have been subject to Roundtable on Sustainable Palm Oil (RSPO) complaints or suspension. HSBC claims that its funding and advice have assurances that “do not result in an unacceptable impact on people or the environment”.

In 2015, HSBC was named as a leader in the Forest 500 ranking for its deforestation efforts and policies. A spokesperson from HSBC told edie: “HSBC’s policies prohibit the financing of operations that are illegal, damage high conservation value forest/landscaping or violate the rights of workers and local people. HSBC does not knowingly provide financial services which directly support palm oil companies which do not comply with our policy. We are not aware of any current instances where customers are alleged to be operating outside our policy and where we have not taken, or are not taking, appropriate action.”

Matt Mace