Amid growing pressure on developing countries to join an international climate treaty later this year, a new report found emerging market banks are beginning to integrate climate change considerations into lending and other business decision-making.
The report published by Boston-based Ceres, a network of investors and environmental organizations which addresses sustainability challenges such as global climate change, found strong evidence that most Asian, Latin American and other emerging market banks are aware of the wide-ranging business impacts from climate change.
The bank are aware of the growing physical risks from increased drought and flooding and the growing investment opportunities associated with renewable energy, energy efficiency and climate adaptation projects. Despite these trends, the report shows that only a small number of banks are financing clean energy programs and fewer still are participating in carbon trading projects.
"More emerging market banks realize that climate change is a big business issue, but their responses so far are inconsistent and only scratch the surface of what is needed," said Mindy S. Lubber, president of Ceres, which published the report, Addressing Climate Risk: Financial Institutions in Emerging Markets. "As key providers of capital in these developing countries, these banks must do more to steer their economies to safer, clean energy solutions and away from risky carbon-intensive investments that exacerbate climate change."
The report, authored by RiskMetrics Group, a leading provider of risk management and corporate governance services to the global financial community, features a survey of financial institutions in emerging markets. RiskMetrics contacted 154 banks, credit institutions and investment funds in Asia, Eastern Europe, Latin America and other regions, of which 64 institutions provided full survey responses.
With the global carbon trading market expected to reach $3 trillion by 2020 if cap-and-trade carbon-reducing laws are passed in the United States and other markets, emerging market banks have a significant opportunity to broker the deals and promote sustainable development of their economies.
The report found a growing number of emerging market banks are responding to climate-related risks and opportunities, primarily by implementing climate-specific policies, elevating board of director oversight and boosting investments in clean energy and carbon-trading opportunities. But only a handful are integrating climate risks into their core business of lending by pricing carbon costs into their financing decisions.
