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French banks stride ahead of European peers in fight against climate change

Available on the ShareAction website

  • French banks show marked leadership in green banking, encouraged by innovative legislation.
  • Three UK listed banks rank in bottom five – an important message for London’s positon as a global financial centre as low-carbon finance grows in profile.
  • Despite shareholders with nearly $2 trillion of AUM demanding better climate-related risk management from banks, few European banks have yet to put in place a coherent action plan to manage these complex risks.

Research by ShareAction, the responsible investment watchdog, ranks the 15 largest European banks on their disclosure and management of climate-related risks and opportunities. All 15 banks selected for examination participated in ShareAction’s survey. The results show French banks take three out of the top five spots.

Scored out of a possible 162 points, the five top performers are BNP Paribas (107), UBS (94), HSBC (92.5), Crédit Agricole (92), and Societe Generale (89). The worst performers, according to the report, are RBS (54), BBVA (52.5), Standard Chartered (52.5), UniCredit (43) and Lloyds Banking Group (37).

The findings indicate that French leadership is largely due to new legislation that strengthens mandatory disclosure requirements and stress-testing for banks in France on climate-related risks, called Article 173. Jean Boissinot, Director, Financial Stability at Direction Générale du Trésor, French Ministry of Finance, says: “It is encouraging to see that this policy approach may indeed have contributed to nudging institutions towards stronger action.” Sonia Hierzig, author of the report, says other jurisdictions should consider similar legislation to remain competitive. This is of particular relevance in the UK as London strives to retain its leading position as a global financial centre in the context of Brexit.

In September, a coalition of institutional investors with nearly $2 trillion of assets under management, co-ordinated by ShareAction and Boston Common Asset Management, sent a letter to the CEOs of 62 global banks, calling for improved climate-related disclosures.

This new report highlights for investors the highly variable performance of major European banks. In particular, most banks surveyed by ShareAction gave weak responses to questions on their specific financial exposures to climate-related risks and opportunities. BNP Paribas was the only bank to respond to a question about the percentage of high-carbon assets on its balance sheet. ShareAction’s report includes banks’ individual scorecards and offers recommendations to investors, based on the data, on topics to raise with banks’ boards and executive management.

The report assesses banks’ performance across four key themes:

  1. Climate-related risk assessment and management;
  2. Low-carbon products and services;
  3. Public policy engagement and collaboration;
  4. Governance structures and strategy on climate-related risks and opportunities.

The results will come as welcome news to French financial policy-makers ahead of President Macron’s climate summit on 12 December. Two years on from the Paris Agreement, the aim of the Macron summit is to catalyse public and private finance into tackling climate change.

Sonia Hierzig, Project Manager at ShareAction and report author, says: “We applaud the leaders in this ranking for engaging seriously with the threat to our society and economy posed by climate change. 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.”

Sarah Breeden, Executive Director, International Banks Supervision at the Prudential Regulation Authority, wrote a foreword for the report in which she says: “The Bank has been seeking to enhance the resilience of the UK financial system to climate-related risks. This includes engaging with regulated firms on these issues through our prudential supervision, as well as participating in international initiatives to support an orderly market transition to a lower-carbon economy. The Bank will soon be publishing its own review into the UK banking sector’s response to climate-related risks.  As part of this, we will consider ShareAction’s findings and the types of recommendations set out in their report. Firms, investors, regulators and society at large will need to work closely together to meet the immense challenge of climate change. This report is an important input to those efforts.”

Laurence Pessez, Head of Group Corporate Social Responsibility at BNP Paribas, says: “We are pleased to learn that ShareAction’s ‘Banking on a Low-Carbon Future’ survey has identified our bank as the leader among the largest European banks in terms of our response to climate change. As an international bank, our role is to help drive the energy transition and contribute to the decarbonisation of the economy. We hope our experience on this journey so far will be helpful to our peers in the development of their own climate strategies.”

Paul Todd, Director of Investment Development and Delivery at NEST, the UK workplace pension scheme, says: “As an asset owner it is invaluable to have this analysis at our disposal. 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.”

Pierin Menzli, Head of Sustainable Investment Research at Bank J. Safra Sarasin says: “It is an increasingly well-recognised fact that the banking sector is exposed to financially material climate-related risks across its wide-ranging activities. At the same time, banks are uniquely positioned to help provide the capital required for the low-carbon transition. It is in the interest of the investor community that banks step up to their responsibilities in both of these areas. Surveys like this one carried out by ShareAction are extremely valuable in terms of monitoring banks’ performance and ensuring the sector aligns itself with internationally agreed climate targets.”

– ENDS –

Notes for editors

  • For more information contact Beau O’Sullivan at beau.osullivan@shareaction.org or +44203 475 785
  • A full copy of the report is available here 
  • The banks’ full individual scorecards are available here.
  • This is the first comprehensive report to capture the current state of the European banking sector’s response to climate-related risk and the low-carbon transition
  • ShareAction selected 15 leading European banks for inclusion in this study. The largest publicly traded banks by total assets in Europe were identified based on data from S&P Global Market Intelligence. The final list includes the five largest UK banks (due to previous engagements) and the 10 largest continental European banks. This list includes banks headquartered in seven countries: the UK, France, Spain, Switzerland, Germany, Italy and the Netherlands.
  • BBVA is currently reviewing its environmental & social framework and will publish its new climate change strategy at the end of December, including long-term commitments and new industry policies.
  • See here for an investor guide to engaging with banks on climate change
  • ShareAction has undertaken annual benchmarking studies of the financial services sector on environmental, social and governance issues since 2006. ShareAction’s next surveys will cover the global insurance sector and the UK’s pensions auto-enrolment sector.
  • About ShareAction: ShareAction is a charity with a mission to transform capital markets into a greater force for public good. Our vision is of a responsible investment system that truly serves savers, communities, and protects our environment for the long term.
  • Other key findings from the report include:
  • 1) Policy and process – All 15 surveyed banks have considered climate-related risks and opportunities and adopted policies, introduced processes and launched products as a result. The 100% response rate to the survey also provides an indication that banks are becoming increasingly aware of the issue.2) TCFD recommendations13 out of 15 banks have confirmed their intention to implement the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. However, there are clear differences in the interpretation of these recommendations and TCFD ‘readiness’. ShareAction expects a number of banks to publish more comprehensive approaches to the TCFD recommendations during 2018 and encourages banks’ shareholders to monitor these and engage in follow-up discussions as necessary.3) Scoring patterns – The surveyed banks generally perform well on questions related to public policy engagements, collaboration, governance and climate strategies (sections 3 and 4). Most banks give weaker responses on the more complicated areas of risk assessments and management and the development of low-carbon products and services (sections 1 and 2). This should be a red flag to investors, who will be most interested in banks’ actual exposure to climate-related risks, how these are managed and how this will affect their own investment portfolios.

    4) Sector exposure – 14 of the 15 banks have adopted policies to avoid or limit exposure to activities with significant negative climate impacts, such as thermal coal extraction. These policies vary in nature and still leave many banks with significant exposures to climate-related liabilities and risks. This will be a concern for institutional investors, who should ensure banks’ policies are aligned with the climate targets set in the Paris Agreement of limiting global average temperature rises to <2°C.

    5) Client engagement – 13 of the 15 banks have policies on engaging with clients in sectors most exposed to climate-related risks. However, most of those policies do not set clear objectives and timelines or detail what the consequences are if clients fall short. It is important that shareholders request these policies are improved and information about clients’ transition plans is included in loan covenants. This will improve the banks’ ability to manage climate-related risks appropriately when lending to sectors with high-carbon activities or highly exposed to climate-related risks.

    6) Green product innovation – All banks have developed a range of products that help clients meet the challenges and opportunities caused by changes in technology, regulation and consumer behaviour driven by climate change. The supply and choice of low-carbon products and services is expanding rapidly. Institutional investors should encourage banks to continue with this positive trend for innovation and scale up the current range of offerings.

    7) Third party engagement – All surveyed banks are actively engaging with external actors on climate-related issues, including policy-makers, trade associations and credit rating agencies. Banks’ shareholders are encouraged to do the same to ensure the right policies and regulations are in place for a smooth low-carbon transition across the European banking sector.

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Published on: 7th December 2017

Filed Under: News

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