38 banks against climate change: what are they achieving?

This UNEP FI project (Finance Initiative of the United Nations Environment Program) brings together a leadership group of 38 banks from across all six continents who have committed to align their loan portfolios (i.e., finance businesses committed to the environment) with the global climate goal to limit warming to well-below two degrees, striving for 1.5 degrees Celsius. With more than $15 trillion in assets, these Banks are fast-tracking the commitment all UN Principles for Responsible Banking signatories have made to align their business strategy with the goals of the Paris Agreement. Although most of the banks still have a number of steps to implement before they can publish a full assessment of their portfolios’ alignments or set targets, as the report notes, the activities conducted to date have put in place the foundations for the signatory banks to do so within 3 years of joining.

One year after ratifying the agreement, signatories have delivered on their commitment to publish the measures they are taking to align their portfolios with international climate goals. The report outlines the measures implemented by these banks, which include developing methodologies for assessing portfolio alignment, exclusion policies for sectors such as coal and strategies to help clients reduce emissions. The document also concludes that there is a growing use of scientific climate scenarios in banks’ strategies to establish their alignment goals with the Paris Agreement.

As the report underscores, these financial institutions are also “providing the leadership, guidance, tools and frameworks for the 200+ signatories to the Principles for Responsible Banking, who together represent approximately 40% of the global banking sector.”

“Ten months into a global pandemic, society is seeing and understanding in stark terms the consequences of systemic crises and risk. We see clearly how our economic, civic, and political systems are connected and must work together to achieve society’s needs and goals,” reads the Year One Review report of the Collective Commitment to Climate Action.

According to the document, as time goes by – without taking adequate action – the chances to comply with the Paris Agreement diminish, and the consequences of decades of inaction become clearer, as evidenced by reports of natural disasters. However, in the face of this increasingly pressing challenge, as UNEP FI states in the report that “as the urgency continues to grow, so does our ambition and our responsibility to act.”

For the CCCA, the delay to COP26 due to the COVID-19 pandemic should be considered an opportunity  which has “allowed both governments and the private sector the space to organize themselves and take strong action to arrest this crisis and determine how nations jointly advance the global agreement, which was reached in Paris.”

BBVA in the report

The document mentions BBVA's participation in the PACTA (Paris Alignment Capital Transition Assessment) methodology pilot in 2019, when the bank carried out an initial analysis of its loan portfolios to align them with the goals of the Paris Agreement on climate change.

The adoption of the PACTA methodology was further promoted with the signing of the Katowice Commitment, an agreement between five leading banks arising from the United Nations Framework Convention on Climate Change (COP24). This group of lenders, known as the 'Katowice banks', publicly committed to developing an open methodology that would allow them to progressively align their activities with the Paris Agreement goals.

The paper also reports on BBVA's sector norms, dubbing them " key instrument in their management of environmental and social risks in general." As an example, it cites a new exclusion policy introduced in 2019 for oil sand projects.

The Norm’s purpose is to address the specific aspects of sustainability and establish a decision framework for the management of customers and transactions in those sectors with the greatest potential impact on nature and people and exposure in the transition to a low-carbon economy, including energy, mining, infrastructure and agribusiness. Although they were approved in 2018, the Norms are updated annually to ensure alignment with sustainability trends, international regulation, best practices, and the demands of the Group’s stakeholders.

The report also emphasizes the significance of governmental actions aimed at turning the Paris Agreement goals into legal frameworks to achieve a Net Zero carbon scenario, where the financial sector will need to adapt and allocate capital according to their understanding of the opportunities and risks and ability to maximize impact. As noted by BBVA, “the climate transition will require significant investments in the short term in many industries. In addition, technological advances in energy efficiency, renewable energy, efficient mobility or circular economy, mean that the fight against climate change is now affordable and profitable, moving from a limited market to a more massive one with enormous business potential.”