Banks urged to dump carbon intensive investments

Green banking practices are evolving rapidly, but the financial sector should play a far more proactive role in tackling climate change and begin to withdraw funding from carbon intensive industries.

That is the conclusion of a major new report from green investment think tank Ceres, which argues that financial institutions should use their $6tn investment budgets to more explicitly support sustainable businesses.

The report, Corporate Governance and Climate Change: The Banking Sector, analyses climate change governance practices at the world's 40 largest banks, and finds widespread adoption of green initiatives, such as setting internal greenhouse gas reduction targets, boosting green equity research and increasing investment for cleantech and renewable projects.

However, it warned only a few of the surveyed banks have begun genuinely integrating climate risks into core business lending.

Douglas Cogan, director of climate change research at RiskMetrics group and lead author of the report said that banks needed "to start re-ordering their investment and lending priorities now, especially in the energy sector, to reflect changing asset and credit valuations [impacted by climate change]".

However, Mindy S Lubber, president of Ceres, went further still arguing that "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 found no financial institution has committed to avoiding carbon-intensive projects such as coal-fired power plants.

The banking community has repeatedly resisted calls to shun carbon intensive investments, with even those banks that have aligned themselves with green issues arguing they can prove more effective at cutting emissions by investing in carbon-intensive industries and using their influence to promote adoption of low-carbon best practices.

The report recommends that banks should elevate climate change to a board level issue and adopt improved disclosure policies for financial risks posed by global warming. It also advocates setting higher, transparent targets to reduce carbon footprints for both investment portfolios and bank's internal operations.

HSBC, ABN AMBRO and Barclays were the highest scorers in the diversified bank category while Goldman Sachs, Merrill Lynch and Morgan Stanley led the Investment Banks class.