Environment News Service (ENS)

Big banks ranked on climate change practices

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Source: Environment News Service (ENS)

Goldman Sachs ranks highest and Bear Stearns ranks lowest of the investment banks rated in a first-ever analysis of the climate change governance practices of 40 of the world’s largest banks.

Of the diversified banks, the report issued Thursday by the Ceres investor coalition based in Boston ranks HSBC Holdings at the top and the Bank of China at the foot of the list.

Established in 1865 as the Hongkong and Shanghai Banking Corporation, and now based in London, HSBC Holdings is the world's largest financial group in terms of market capitalization.

Jon Williams, head of Group Sustainable Development, HSBC Holdings, said on a telephone news conference call Thursday that the bank is 'committed to playing a leading role in finding and funding solutions to climate change.' He said HSBC 'has a longstanding commitment to climate change as the single largest social and environmental challenge this century.'

Calling HSBC 'the world's first carbon neutral bank,' Williams explained that the bank has reduced its direct climate impacts by investing $90 million to improve the environmental efficiency of its buildings and has offset the greenhouse gases emitted by the energy used by its buildings since 2005.

As special advisor to the chairman on climate change matters HSBC appointed British economist Lord Nicholas Stern, a former adviser to the British government on the economics of climate change and development, and a former chief economist of the World Bank.

His 2006 report, 'The Stern Review' on the economics of climate change was first to make the point that strong action at manageable cost can dimish the magnitude of the climate change risk.

'Climate change is the biggest risk the world faces this century and next,' Stern told reporters on the tele-conference. 'How big it turns out to be depends on our decisions.'

'We face these risks largely because markets have failed,' he said. 'They've failed on the crucial dimension that people don't face the costs of the damages they inflict on others through climate change. Indeed, it's the greatest market failure the world has seen.'

'We can overcome this market failure, we can fix the markets,' Stern said, 'but it's going to be governments, and business and ordinary people working with markets that will overcome this problem.'

Both the problem itself and the actions to respond to it bring both risks and opportunities, he said.

Climate change brings risks to directly threatened assets from floods or storms. There are risks to firms because their stakeholders - their employees, their customers, their investors, will take this issue seriously, and if firms don't come up to scratch, they can take their business elsewhere, Stern pointed out.

But there are so many ways people can change the way they do things through building and insurance, so many new kinds of investments that can be made, he said.

'Banks are about managing risks and financing opportunities. It's very good to see that this crucial response from the banks is beginning. It will be a key dimension performance and competition for banks, and that's why the Ceres report is so important,' said Stern. 'The Ceres report has done a very nice job in bringing out the differences in performmance among banks.'

The Ceres report shows that a growing number of European, U.S. banks and Japanese banks are responding to the risks and opportunities posed by climate change by setting internal greenhouse gas reduction targets, boosting climate-related equity research, and elevating lending and financing for clean energy projects. But many others still are not addressing climate change.

The report ranks 16 U.S. banks, 15 European banks, five Asian and three Canadian banks, and one Brazilian bank.

The five highest scoring banks are all based in Europe - HSBC Holdings, ABN AMRO, Barclays, Halifax Bank of Scotland and Deutsche Bank - followed by Citigroup and Bank of America.

The report employs a 14 point 'Climate Change Governance Checklist' to evaluate how the 40 banks are addressing climate change through board of director oversight, management performance, public disclosure, greenhouse emissions accounting and strategic planning.

The report took six months to complete and uses data from securities filings, company reports, company websites, third-party questionnaires and direct company communications.

Only a handful of the 40 banks rated have begun integrating climate risks into their core business of lending by pricing carbon into their finance decisions or setting targets to reduce greenhouse gas emissions in their lending portfolios.

'More banks realize that climate change is a big business issue, but their responses so far are the tip of the iceberg of what is needed to tackle this colossal global challenge,' said Mindy Lubber, president of Ceres, which published the report, 'Corporate Governance and Climate Change: The Banking Sector.'

'As a key provider of capital and financing worldwide, banks must do more to move the economy away from fossil fuels and high-carbon investments that are exacerbating climate change,' she said.

Lubber told reporters that the putting a price on emissions of the greenhouse gas carbon dioxide is the most important thing that can be done to convince banks to address climate change.

'Without the right market signal, banks can't do their jobs,' said Lubber. 'If there is no price on carbon, this is exactly the wrong signal. Banks and pension funds need adequate market signals,' she said. 'Put a price on carbon.'

The European Union has put a price on carbon emissions and is trading them on a carbon market. The European Union Emission Trading Scheme, EU ETS, is the largest multi-national, greenhouse gas emissions trading scheme in the world, and is a major pillar of European climate policy.

Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their carbon dioxide emissions, and they are obliged every year to give back an amount of emission allowances to the government that is equivalent to their emissions in that year. The experts on the tele-conference suggested that this carbon market is one reason why the European banks scored highest on the Ceres ranking.

Stern said, 'This whole story is will be driven by the price of carbon, this is about making markets work.'

He predicts that in the future we will see 'a race of who will be commiting the most funding to renewable energy investments and more banks will make formal pledges to do so.

In the United States, the Bank of America scored highest on the Ceres ranking because it has set target of seven percent to reduce intensity of emissions of its utility portfolio over 2004 levels. This bank wants to give preference in lending to utilites that are shrinking their carbon footprints.

Lubber said, 'What the Bank of America is doing is exactly the framework we want to set. Their target impacts their lending protfolio, although it's not as much as we'd like to see. There is much more to do.'

Some scientists are producing evidence that climate changes are happening much more quickly than was thought even a few years ago, and climate change is a growing problem.

Williams said that when HSBC started its climate change response activities just three years ago they thought about the problem over a 40 to 50 year period. 'Today science tells us that the next 10 years is critical. We must build the analytical resource area very rapidly with governments and business,' he said.

The report's author Douglas Cogan, director of climate change research at the RiskMetrics Group, told reporters on the tele-conference that climate change is a 'magatrend' that is 'as big as the fall of Iron curtain or even larger.'

In next 40 years, there must be a 80 to 90 percent reduction of greenhouse gases in industrial economies to cap these gases at manageable levels. 'To do that means a decarboniziation of economies. This must be done now, not 40 years from now,' Cogan said.

'The global economy may still be able to grow largely as forecast if we keep greenhouse gases at 450-550 parts per million. We can do this, but for certain sectors it will be a true revolution,' said Cogan, 'moving away from carbon to non-carbon technologies.'

Lubber said the response to climate change 'must be pushed by government action, and every industry must do more - sooner rather than later.'

She said the change in thinking about climate change among the financial institutions over the past three years has been 'miraculous' but 'we need to double and triple that in the next three years.'

'It is imperative,' said Lubber. 'We have no choice but to pick up the pace. We hope this report can help banks see what can be done. We need exponential growth in limiting emissions and investing in new technology.'

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