iStock illustration

A new report from Boston Common Asset Management (BCAM) finds that, while risk assessment tools and green banking industry initiatives have expanded in recent years, more changes are needed within the financial industry to manage climate-related risks.

“Banking on a Low-Carbon Future: Finance in a Time of Climate Crisis” is the fifth annual report by the Boston-based investment manager studying how global banks manage climate risks and opportunities. The 58 banks included in the study, which was released this month, were selected by BCAM five years ago as the biggest banks financing carbon-intensive sectors, according to the report.

Of these banks, 41 responded directly to researchers, including Bank of America, Banco Santander, Citigroup, Credit Suisse, JP Morgan Chase, TD Bank and Wells Fargo. Another 17 banks were analyzed based on publicly available documents.

The reports key findings include:

• The financial industry has created sustainability initiatives during the past five years, including the Taskforce on Climate-related Financial Disclosures (TCFD), Principles for Responsible Banking (PRB) and the Platform for Carbon Accounting Financials (PCAF).
• Financing for fossil fuels rose each year from 2016-2018, totaling $1.9 trillion during that time frame.
• About 60 percent of banks have developed policies to exclude or restrict clients in high-carbon sectors, and 16 percent exclude clients involved in deforestation.
• Half the banks engage high-carbon clients on transition strategies, and 12 percent ask clients in the high-carbon sector to adopt TCFD guidelines.
• A majority of banks have endorsed the TCFD guidelines (69 percent), disclosed TCFD governance reforms (71 percent) and carried out climate risk assessments (78 percent).

“The scale of the climate crisis demands a more radical transformation of the banking sector,” Lauren Compere, BCAM managing director and author of the report, said in a statement. “Our findings indicate a systematic reluctance by banks to demand higher standards from high carbon sector clients, despite the fact that doing so could vastly reduce bank risk and accelerate action on climate change.”

The report calls on banks to:

• Adopt a clear strategy for decarbonizing balance sheets, including clear timelines for restrictions and phase-outs of financing for fossil fuels and deforestation.
• Set explicit targets to increase the proportion of sustainable finance commitments relative to their overall financing activities, noting that 45 percent of banks have yet to set any such objectives.
• Publicize their definitions of “low-carbon” and “green” investment, noting that some green finance commitments appear to be merely re-allocations or rebranding of existing commitments.
• Integrate public policy on climate into overarching climate strategy, engage trade associations on adopting progressive climate policies, and use the company’s public voice to promote progressive climate policy with governments and regulators.