HSBC, Other European Banks Receive Top Scores in First-Ever Ranking of 40 Leading Banks on Climate Change Strategies
Citigroup and Bank of America post Highest Scores Among 16 U.S. Banks
BOSTON - While encouraging progress is being made, the banking sector still has a long way to go in confronting the business challenges posed by global climate change, according to a first-ever report issued today by the Ceres investor coalition that analyzes climate change governance practices of 40 of the world’s largest banks.
Banks and financial institutions, with nearly $6 trillion in market capitalization, are a key player in combating the impacts of climate change and supporting the investments necessary to move the world economy on a pathway to reduced greenhouse gas emissions.
The report found that a growing number of European, U.S. banks and Japanese banks are responding to the risks and opportunities presented by climate change, primarily by setting internal greenhouse gas (GHG) reduction targets, boosting climate-related equity research and elevating lending and financing for clean energy projects. But many others are still not addressing climate change and only a handful of the 40 banks have begun integrating climate risks into their core business of lending by pricing carbon into their finance decisions or setting targets to reduce GHG emissions in their lending portfolios.
The shortcomings were evident in the report’s final scores. Using a 1- to 100-point scoring system, the two highest scoring banks were European-based HSBC Holdings and ABN AMRO with 70 points and 66 points, respectively. More than half of the 40 banks scored under 50 points, with a median score of 42 points.
“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 S. 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.”
The report employs a “Climate Change Governance Checklist” to evaluate how 16 U.S. and 24 non-U.S. banks are addressing climate change through board of director oversight, management performance, public disclosure, GHG 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.
The report ranked 16 U.S., 15 European, five Asian, three Canadian and one Brazilian bank. The 40 companies include several different classes of financial services firms, including diversified banks, investment banks and asset managers. The final scores are weighted to reflect the fact that some of the banks – specifically, asset mangers and investment banks – are not engaged in the full spectrum of product and service offerings assessed by the Climate Change Governance Checklist. (Company scores, profiles and the summary report are available at http://www.ceres.org.)
Among the key scores:
||Highest Scorers||Lowest Scorers|
HSBC (70 points)
Bank of Nova Scotia (26 points)
Goldman Sachs (53)
Lehman Brothers (26)
State Street Corp (36)
Franklin Resources (1)
Leading institutional investors requested the Ceres report, authored by RiskMetrics Group’s Climate Research Team, to boost understanding and awareness about the banking sector’s role and response to climate change. The investors are part of the Investor Network on Climate Risk (INCR), an alliance of U.S. institutional investors coordinated by Ceres that collectively manage more than $4 trillion in assets.
“Over the next 40 years, we’re looking at the virtual de-carbonization of industrial economies if the warnings of climate scientists are going to be heeded,” said lead author Douglas Cogan, director of Climate Change Research at RiskMetrics Group. “Banks need to start re-ordering their investment and lending priorities now, especially in the energy sector, to reflect changing asset and credit valuations.”
The five highest scoring banks were all based in Europe – HSBC, ABN AMRO, Barclays, HBOS and Deutsche Bank – followed by Citigroup, Bank of America and the Royal Bank of Scotland.
The report provides much evidence that many banks are responding to climate change through equity research and new product offerings, with European banks being in the forefront and many U.S. banks following closely behind. Many of the positive actions have come in the past 12 to 18 months, especially in regard to disclosure, internal emissions management and financial support for clean energy.
Among the highlights:
- The banks have issued nearly 100 research reports on climate change and related investment and regulatory strategies, more than half of them in 2007 alone;
- 34 of the 40 banks responded to the latest climate-disclosure annual survey conducted by the Carbon Disclosure Project, a nonprofit group that seeks information on climate risks and opportunities from companies on behalf of investors;
- 28 of the banks have calculated and disclosed their GHG emissions from operations and 24 have set some set some type of internal reduction target;
- 29 of the banks reported their financial support of alternative energy, eight of which alone have provided more than $12 billion of direct financing and investments in renewable energy and other clean energy projects.
Yet for all of the positive momentum, many of the 40 banks have done little or nothing to elevate climate change as a governance priority – a trend that cuts across European, North American and Asian banks alike. For example:
- Only a dozen of the 40 banks have board-level involvement and all but one of those firms are non-US-based;
- Only a half-dozen banks say they are formally calculating carbon risks in their loan portfolios, and only one of the 40 banks – Bank of America – has announced a specific target to reduce greenhouse emissions associated with the utility portion of its lending portfolio;
- No bank has set a policy to avoid investments in carbon-intensive projects such as conventional coal-fired power plants or Canadian tar sands.
The report concludes that more action is needed to align the banking sector with greenhouse gas reductions that scientists say are needed to avoid the dangerous impacts of climate change. In this regard, the report recommends that banks:
- Elevate climate change as a governance priority for board members and CEOs, especially at U.S. banks where direct board involvement has been virtually non-existent;
- Provide better disclosure about the financial and material risks posed by climate change, their own emission reduction strategies, and emissions resulting their financing and investment;
- Explain how they are factoring carbon costs into their lending decisions, especially for energy-intensive projects that pose financial risks as carbon-reducing regulations take hold worldwide;
- Set progressively higher targets to shrink the carbon footprint of their lending and investment portfolios, and be more transparent about they plan to meet these objectives.
About Ceres and INCR:
Ceres is a leading coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges such as climate change. Ceres direct the Investor Network on Climate Risk (INCR), a network of 60 institutional investors with collective assets totaling more than $4 trillion. For more information, visit http://www.ceres.org and http://www.incr.com
About RiskMetrics Group:
RiskMetrics Group is a leading provider of risk management and corporate governance products and services to financial market participants. By bringing transparency, expertise and access to the financial markets, RiskMetrics helps investors better understand and manage the risks inherent in their financial portfolios. Our solutions address a broad spectrum of risk across our clients' financial assets. Headquartered in New York with 19 global offices, RiskMetrics serves some of the most prestigious institutions and corporations worldwide. For more information, visit: http://www.riskmetrics.com.