Top banks failed to disclose finance shares directed to climate solutions; impact seen at $1 trillion: Report
Financial institutions are assessing the most significant climate-related risks – with a potential financial impact of $1 trillion. Of the world’s 26 largest banks, none disclosed the full share of finance devoted to climate solutions in their most recent reporting year, according to a study by the Global Climate Change Center (TPI Centre).
In addition, the net commitments of one bank do not include both on- and off-balance-sheet items and less than a quarter of banks have publicly pledged to stop financing new coal resources, of according to a report titled ‘The Green Pill’ issued by SBI CAPS.
The TPI Center analysis also found that only six banks disclosed a commitment to end all on- and off-balance sheet activities that finance new coal capacity immediately. The International Energy Agency (IEA) has indicated that OECD countries should phase out coal by 2030, and by 2040 if the world is to limit global warming to 1.5° Celsius.
Also read: Redefining real estate: The evolution from ESG compliance to corporate leadership
“Although 22 banks out of the 26 assessed have set at least one sector target for their loan portfolio, only 6 banks have set financing conditions for high-emission sectors. This means that most of the banks’ sector decarbonisation targets and commitments are not supported by a full set of measures to incentivize the transfer of companies in that sector,” said TPI in its study.
Most institutions (65 percent) are not reporting their credit risks, such as borrower default on loan repayments and most (74 percent) are not reporting market risks, such as stranded assets and devaluation of financial asset prices, showed the results of the study, according to a CDP study from 2020 based on 300+ financial institutions.
Despite the growing momentum of financial institutions announcing net-zero goals, the CDP study shows less than half of financial institutions are exposed and only 27 percent of insurers report actions to align portfolios with global warming limited to less than 2 degrees Celsius.
India’s focus on ESG
Earlier this month, the government launched a special program where an individual or entity can earn green credit and trade it on a dedicated exchange. The initiative aims to encourage environmentally positive activities, and is part of the ‘Saoil’ – ‘A Way of Living for the Environment’ movement. The scheme envisages a market-based mechanism whereby businesses can meet their legal obligations by trading green credits.
A Green Credit refers to an incentive unit provided for a specified activity; delivering a positive impact on the environment. The credit is generated as designed by the administrator (Indian Council of Forestry Research and Education). The administrator will also establish and maintain a trading platform, which will facilitate an active market.
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Updated: 31 October 2023, 08:43 PM IST
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