The impact that banks have on the real economy through their loans and investments is increasingly recognized, particularly through their role in financing the extraction of fossil fuels and thereby enabling the current climate crisis.
But it’s easy to point fingers, especially at a huge target like the banking sector.
Banks are giant corporations, designed for stability, not change. In all this controversy around climate change and the role of finance, we must not forget that the system in question is made up of people, and many of them are fighting for a change within their institutions to solve this problem.
At the top, promises are made and goals are set for the future – needless to remind anyone of the wave of net zero commitments in banking, finance and fintech.
But there is still a great need for a shift in mindset at the top level, as this trickles down from the top internally within the organization, empowering employees to contribute to change and helping some to feel more aligned with the values of the company they work for.
In order to implement this kind of holistic change, you need to have a leadership team that is knowledgeable about sustainability solutions. Fortunately, there are opportunities for banking professionals who are concerned about climate change and who are committed to fighting for change within their institutions to address it.
Enter the Climate Safe Lending Network – international collaboration focused on accelerating the decarbonisation of the banking sector.
The network brings together senior leaders from banks, investment firms, NGOs, financial regulators and policymakers, businesses and universities to collectively explore how they can play their part in accelerating change .
It has also hosted a fellowship program over the past year with 23 participants from 20 banks around the world, working to equip banks with climate leaders who can catalyze their transition to climate-safe banking.
One of the key learnings from the program was that the fastest moving banks on climate developed a plan not only for their lending and investment strategies, but also for the institutional structures, operations and culture needed to their products and services.
In a research reportthe collective has identified three main strategies that have led to transformation within a bank:
- Integrating climate into all decision-making: instead of just considering certain aspects as “green”, apply a climate lens to all business activities
- Evolving the role of sustainability teams: these teams must not work in a vacuum, they must ultimately put in place the right conditions for each employee to play a role
- Build capacity for action across the organization: facilitate the sharing of interpersonal knowledge and skills among colleagues
People who participated in the fellowship pointed out that there is still a significant gap between the level of change needed and what they see as things that can be done by policy makers.
One of the participants in this fellowship was tasked with helping credit risk teams consider climate risk as a critical part of their bank’s reviews and observed that climate risks were not sufficiently considered in loan risk analyses. Moreover, credit analysts have been reluctant to change this strategy.
“There are parts of the bank where no climate risk analysis is going on. They’ve never done it, they’re not hired to do it, they’re not paid to do it. We have people with big intentions, but it always comes down to pressure from the business side,” the man said.
This example reveals that there are still many cases where employees expect top-down direction or cultural change. What senior management and decision-makers find important and prioritize trickles down to other layers of the organization.
But getting management to pay attention to these issues is difficult, especially when other concerns dominate the agenda.
“My bank has been in chaos for two years. I learned that we don’t have to wait for the CEO to tell us what’s next. There are small pockets of what you can accomplish. A lot of it is about the alliances you build,” another man said.
While still small compared to the scale of the problem, these types of initiatives could have big impacts. Maybe we should rely less on advice from those at the top and just be the change we want to see in the world. And those who fight to make a difference from within will be the unsung heroes of a more sustainable economy.
Chart of the week
This is why Europe is always one step ahead of the United States when it comes to climate technology solutions…
quote of the week
“We need to move from voluntary or ambitious commitments to concrete implementation plans with real accountability. The smartest companies have seen the writing on the wall and are moving fast, but too many still imagine that some kind of smart ESG accounting will allow them to avoid deep decarbonization.
- Thomas Hale, Associate Professor at the Blavatnik School of Government, University of Oxford
what we write
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The SEC steps in to regulate ESG
US regulators are starting to focus on greenwashing, proposing a new set of ESG fund disclosure requirements. And truth be told, there’s a lot of cleaning to be done.
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Sustainability has started to enter the corporate agenda, rising to the top of the priority list for a growing proportion of banking and finance chief executives.
What we read
Watchdog offsets to clarify net zero may cause confusion (Bloomberg)
How Charles Koch bought the Supreme Court’s EPA decision (The interception)
Regulatory solutions: a global crackdown on ESG greenwash (Harvard Law School)
The pivotal moment in the transition from fossil fuels must leave fossil gas behind (Climate bonds)