Wednesday, November 03, 2021
Banks failing to do their bit to tackle climate change
According to the Guardian, the Bank of England and other banks are facing criticism over the way they are conducting climate stress tests, with politicians and campaigners warning that a lack of penalties for dirty assets will give banks little incentive to clean up their act.
They say that the Bank of England has come under fire for so far refusing to publish data for individual firms, and stopping short of introducing immediate capital requirements, which would make it more expensive to offer loans and services to fossil fuel companies and high carbon projects:
The Bank of England is not the only regulator moving cautiously. So far, the European Central Bank and the Banque de France – which are among the few central banks to have conducted climate stress tests for their respective financial sectors to date – have only published aggregate data covering their finance industries, and have not introduced any restrictions, or deterrents, for banks serving polluting firms.
That is despite warnings from both regulators that banks will be severely affected unless they ramp up their response to the climate crisis.
Any deviation from the Paris agreement would result in higher loan losses for banks, according to the ratings agency Moody’s, rising anywhere from 3.5% in the “least disorderly” scenario, to 20% under the most extreme climate outcomes. It has raised concerns that the banking sector itself will suffer financially without swift action, which could had a ripple effect throughout the global economy.
Globally, reporting standards are low. A report by the Task Force on Climate-related Financial Disclosures (TFCD) published last year found that while bank reporting has improved since 2017, the sector continues to have the lowest percentage of disclosure for climate-related targets across all global industries, with 19% of firms meeting TFCD standards. By comparison, figures for the energy and transport sectors are 44% and 35% respectively.
Part of the challenge is that regulators are intent on gathering as much data as possible before introducing deterrents such as capital requirements, which determine the kind of financial cushion that banks must hold to protect them from risky loans and products on their balance sheets.
This controversy just underlines how hard it is going to be to deliver on the many promises coming out of COP26.
They say that the Bank of England has come under fire for so far refusing to publish data for individual firms, and stopping short of introducing immediate capital requirements, which would make it more expensive to offer loans and services to fossil fuel companies and high carbon projects:
The Bank of England is not the only regulator moving cautiously. So far, the European Central Bank and the Banque de France – which are among the few central banks to have conducted climate stress tests for their respective financial sectors to date – have only published aggregate data covering their finance industries, and have not introduced any restrictions, or deterrents, for banks serving polluting firms.
That is despite warnings from both regulators that banks will be severely affected unless they ramp up their response to the climate crisis.
Any deviation from the Paris agreement would result in higher loan losses for banks, according to the ratings agency Moody’s, rising anywhere from 3.5% in the “least disorderly” scenario, to 20% under the most extreme climate outcomes. It has raised concerns that the banking sector itself will suffer financially without swift action, which could had a ripple effect throughout the global economy.
Globally, reporting standards are low. A report by the Task Force on Climate-related Financial Disclosures (TFCD) published last year found that while bank reporting has improved since 2017, the sector continues to have the lowest percentage of disclosure for climate-related targets across all global industries, with 19% of firms meeting TFCD standards. By comparison, figures for the energy and transport sectors are 44% and 35% respectively.
Part of the challenge is that regulators are intent on gathering as much data as possible before introducing deterrents such as capital requirements, which determine the kind of financial cushion that banks must hold to protect them from risky loans and products on their balance sheets.
This controversy just underlines how hard it is going to be to deliver on the many promises coming out of COP26.
