Banks failing on climate risk

The report titled Are banks prepared for climate change? by US-based investment fund manager Boston Common Asset Management found that across all regions, banks failed to adequately assess the carbon risk of their lending and underwriting portfolios.

“With the Paris climate summit fast approaching, the analysis shows a worrying lack of a strategic, long-term approach to climate risk across many of our leading banks,” Boston Common managing director Lauren Compere said.

“We believe banks are not adequately measuring, managing and disclosing these risks.”

The report assessed 61 banks across three criteria including risk management, climate change strategy and opportunities.

While the report highlighted that banks are falling short on climate risk management plans, Australian banks were among the top performers. Westpac and NAB took out the top two spots for climate risk management.

Citigroup came in at fifth spot, with UBS claiming seventh spot.

The report pointed out that in terms of overall banks’ performance, 34 per cent are below average when it comes to risk management. Only two per cent are rated as leaders when it comes to risk management.

Regarding opportunities, 60 per cent of banks are rated as above average. Conversely, approximately 49 per cent of banks are average when it comes to implementing a climate change strategy.

The report said in order to remain relevant societal institutions in the future, “banks must recalibrate risk management to reflect climate considerations, and integrate climate change risk into their long-term strategic thinking”.

“Banks also have the opportunity to launch innovative leasing and lending products to accelerate the widespread adoption of energy efficiency and renewable power initiatives, ushering in a global transition to a low-carbon economy,” the report said.