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August 07, 2014
Investors Call on Banks to Consider Climate Risks
    by Robert Kropp

Boston Common Asset Management publishes a report on climate risks in the banking sector and invites investors to sign on to letter to be sent to major banks.


Many of the poorest performing US corporations in past Newsweek Green Rankings have been financial institutions, which seems counterintuitive until one reads the explanation: the relationships of financial firms “with companies engaged in environmentally sensitive activities overshadow commitments to mitigate climate change,” the Rankings stated in 2012.

And late last year, the Greenhouse Gas (GHG) Protocol and the UNEP Finance Initiative stated in a report, ““only six percent of financial companies in the FTSE Global 500 reported any emissions associated with lending and investment portfolios to CDP” in 2013.

Announcing an initiative to provide guidance on emissions reporting by financial firms, the two organizations stated, “In the move towards a low-carbon economy, measuring and managing GHG emissions associated with investments needs to become standard business practice for financial institutions and portfolio investors.”

It's been nearly a year since the initiative was launched, but, according to Boston Common Asset Management, progress has been insufficient. In a new report, the Boston-based sustainable investment firm states, “The banking industry has not successfully integrated climate change risk into its long-term strategic planning or understood the implications of this game-changing phenomenon for its business operations.”

In its report, Boston Commons notes that it is participating in the UNEP initiative to develop an improved GHG Protocol, and that “The effort aims to build consensus around Scope 3 emissions calculations for the financial services industry.” However, the firm states elsewhere, it “is concerned that banks have been slow to factor climate change into their long-term strategic plans.”

The report urges banks to adopt three reforms to improve their responses to climate change:
1. Recalibrate risk management to integrate climate change;
2. Drive financial innovation by seeking opportunities to finance energy efficiency, renewable energy, and climate change adaptation; and
3. Develop a long-term climate strategy that includes reporting on GHG emissions in lending portfolios.

"Shareholders should urge banks to be more transparent about the climate risks embedded in their business models, and call for comprehensive action," says Lauren Compere, Director of Shareholder Engagement at Boston Common.

In order to enable the call for comprehensive action referred to by Compere, Boston Common is organizing an investor coalition. The firm is calling on investors to become signatories to a letter that will be sent to the 50 banks that are the largest underwriters of carbon intensive industries.

“Historically, investors have viewed banks as one of the most environmentally neutral sectors of the economy,” the letter states. “Yet the industry’s assets are distributed throughout all sectors, making banking vulnerable to the economic and political uncertainty caused by climate change.”

The letter further points out that stated commitments by banks, whether through membership in such initiatives as the Equator Principles or by corporate sustainability reporting, “provide us with insufficient insights into (the bank's) strategic integration of climate change into its business planning.”

Signatories will continue to be added to the letter until August 13th. Investors interested in signing the letter should contact Compere at lcompere@bostoncommonasset.com.

 

 
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