Banks’ Nebulous Green Finance Claims

    Stockholm (NordSIP) – Today 22 November 2023 non-profit NGO ShareAction published the results of its study of the green finance strategies of Europe’s 20 largest listed banks.  Overall, it finds that these institutions’ green targets and disclosures are not fit for purpose and makes a series of recommendations for banking executives to implement should they wish to avoid accusations of greenwashing.

    The analysis focused on the largest listed banks headquartered in the EU, UK, Norway, and Switzerland.  These are Barclays, BBVA, BNP Paribas, CaixaBank, Commerzbank, Crédit Agricole, Credit Suisse, Danske Bank, Deutsche Bank, HSBC, ING, Intesa Sanpaolo, Lloyds Banking Group, NatWest, Nordea, Santander, Societe Generale, Standard Chartered, UBS, and UniCredit.  The 30 June 2023 research cut-off date preceded Credit Suisse’s merger with UBS.

    Green finance claims lack credibility

    ShareAction found that although all the banks have set one or more green targets and do currently report on their green finance activities to varying degrees there is a significant lack of transparency and clarity across the board.  Given that green finance remains a loosely defined concept, ShareAction sought to keep the scope of the analysis quite broad by including banks’ targets and disclosures related to finance deployed in support of climate change mitigation or adaptation.  These could take the form of green financing towards specific activities or transition financing.  The latter might involve preferential terms linked to borrowers’ climate targets.

    While the presence of published green targets throughout the peer group is a positive sign, ShareAction found that only four of the banks provided any supporting methodology to help quantify their impact.  The remainder relied on backward-looking data, vague terminology, or metrics expressed in absolute monetary terms without relevant context.  Certain banks also blurred the lines between their various businesses, including data regarding cash deposits or asset management within green finance activities.  Another typical discrepancy among the peer group was the conflation of other sustainability themes under the green finance category, without providing a breakdown that could help determine where the bank stands relative to 1.5c pathways.  A lack of sectoral or geographical granularity also prevents the evaluation of banks’ green finance strategies in terms of prioritising mature climate solution in developed countries versus supporting the more pressing needs of the Global South.

    Many of the banks in the peer group were found to be implementing their own disparate range of definitions of green financing, by including carbon-intensive activities such as natural gas extraction or biomass power generation.  In mitigation, ShareAction acknowledges that work on clear definitions and guidelines for green financing is still ongoing.  However, the study reveals a tendency for most of the observed discrepancies to favour the banks’ green credentials.  For example, the analysis showed that Barclays Bank only accounts for a third of its capital markets facilitation towards its emissions reduction targets, while booking the full deal amount when it applies to green financing.  In its report ShareAction sets out a series of recommendations for banks to implement to address the shortcomings in their green finance strategy reporting and disclosures.

    Nordic banks

    Danske Banks and Nordea, the two Nordic institutions included in the peer group fare relatively well on certain metrics.  They are among only four banks with a low carbon to fossil fuel financing ratio exceeding the minimum threshold for 2030 1.5-degree scenarios.  Danske Bank is the standout performer in that respect and is also credited for its commitment to provide DKK 300 billion in sustainable finance by 2023 within its lending and capital markets facilitation activities.

    ShareAction’s report aims to highlight the largest European banks’ continued financing of high-emitting activities despite their high-level climate pledges, as well as the opaque and sometimes disingenuous reporting and disclosure practices evident in this study.  While encouraging bank executives and their regulators to address the problem, they also call on shareholders in these institutions to hold them to account during the forthcoming AGM season.

    Image courtesy of natureaddict from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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