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 firstname.lastname@example.org.