UK banking performance at odds with Government’s green finance leadership ambitions

The UK Government's ambition to promote the UK as a global leader of green finance post-Brexit is already at risk, with a new report finding that French banks have shown "marked leadership in green banking" because of innovative new legislation.

Research from investment watchdog ShareAction ranked the 15 largest European banks on disclosure and management of climate-related impacts and opportunities. Despite the UK’s attempts to become a world leader in green finance, the research ranked three UK-listed banks – RBS, Standard Chartered, Lloyds Banking – in the bottom five. In stark contrast, French banks account for three of the top five spots.

ShareAction’s project manager and report author Sonia Hierzig said: “This leadership and action serves the millions of people with an interest in how banks address climate-related risks, either through their pension savings or their deposits.

“Too many of Europe’s largest banks are still moving slowly on this critical agenda, and this report brings that weak performance to the attention of both investors and regulators of banks. We expect this report to stimulate speedy improvement in the performance of more poorly performing banks.”

In September 2017, the UK Government launched the Green Finance Taskforce to assist the low-carbon economy and boost the UK’s position as a “world leader” in clean growth investment.

Top financial experts from Aviva, Barclays, HSBC, Legal & General, and the Bank of England will work alongside academics and sustainability experts to accelerate private sector funding in green technologies, infrastructure and innovative start-ups. It forms part of an over-arching move to attract and retain banking talent post-Brexit.

However, the ShareAction research suggests that the UK Government should be mirroring regulation in France, if it truly wants to bolster green finance opportunities. French bank BNP Paribas secured top spot in the rankings, while Crédit Agricole France and Societe General round-up the top four behind UK-based HSBC.

ShareAction claims that the high performances of the French banks can be attributed to the introduction of French law on the Energy Transition for Green Growth, which was adopted in August 2015 and came into effect in January 2016. Under the legislation it is mandatory for banks to disclose carbon requirements for institutional investors.

The report suggests that the UK should consider adopting similar mandatory requirements on disclosure and stress testing. The fact that RBS, Barclays and Standard Chartered were listed as “learners” in the report – while Lloyds was named as a “bystander” – serves to highlight the impact that legislation can have.  

The notion that France is a strong believer in green finance will see the European Banking Authority move from London to Paris in the near future. In January 2017, France become only the second country at the time behind Poland to issue green bonds.

The French Ministry of Finance’s financial stability director Jean Boissinot commented: “It is encouraging to see that this policy approach may indeed have contributed to nudging institutions towards stronger action.”

TCFD recommendations

The report noted that 13 of the 15 banks have confirmed intentions to implement the Task Force on Climate-related Financial Disclosures (TCFD) recommendations on disclosing climate-related information alongside financial filings.

The TCFD recommendations have been backed by businesses worth more than $2trn in assets under management, while shareholders worth a similar amount have also demanded better risk management from banks.

However, most banks surveyed by ShareAction gave weak responses to questions on specific financial exposures to climate-related risks and opportunities and there are already calls to strengthen conversations between stakeholders and banks.

The UK workplace pension scheme NEST’s director of investment Paul Todd added: “The information in ShareAction’s report empowers us to have better informed conversations with banks we are invested in about climate-related issues, which make a real difference to long-term fund performance and to our members’ well-being in retirement.

“We are particularly concerned about the banks that are lagging behind, disappointingly some of them UK-based. We will be monitoring their performance closely.”

While the UK banks have performed poorly in the rankings, they are still making efforts to capture green markets. Barclays, HSBC and Lloyds Banking Group have all issued bonds to raise capital to support low-carbon companies and projects.

In fact, the “bystander” of the report, Lloyds banking, has launched a £1bn fund to help real estate owners improve the energy-efficiency ratings of their buildings. The bank claims that up to 100,000 tonnes of carbon could be saved over the lifetime of the fund – equivalent to the output of more than 22,000 homes.

Matt Mace

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