Europe

Europe’s Major Banks Marked Down on Environment

Gaps and inconsistencies found in banks’ climate policies, while nature risks and governance “not a board priority”.

Europe’s biggest banks are falling woefully short in their approach to key environmental issues, according to a new report.

ShareAction’s latest analysis of the continent’s top 25 banking institutions found mediocre performances with regard to climate change and borderline indifference when it came to biodiversity.

“The gaps we found pose real risks to our planet and everyone on it. All approaches remain deeply insufficient,” commented the Responsible investment NGO.

All the banks assessed by ShareAction have made commitments to achieving net zero greenhouse gas emissions, but their decarbonisation targets often do not cover all or even the majority of their financing activities in high-carbon sectors, with policies for withdrawal from coal, or restriction of oil and gas finance, less than comprehensive.

There were much larger shortcomings in banks’ approaches to protecting nature, with most lacking adequate biodiversity strategies and failing to consider biodiversity in risk analysis.

Room for improvement

Banks were scored on three measures, using percentages to gauge their performance against key metrics: their overall approach, their approach to climate risks and their handling of biodiversity.

These scores were then converted into an exam-type grade, ranging from A to E.

Not one bank was graded A, the highest scoring being BNP Paribas, which scored 63% overall and was given a B+ grade. Worst performing was Germany’s DZ Bank, with a 29% overall score and a D+ grade.

French banks also took the second and third positions, Societe Generale and Credit Agricole respectively. The former had an overall score of 56% and a B grade, while the latter scored 51% and was also graded B.

Credit Agricole tied in third place with Dutch bank ING, while fifth place went jointly to two UK banks, Barclays and Lloyds Banking Group, with overall scores of 50%.

The bottom performers, in descending order, were Nordic group Nordea and Credit Mutuel of France, tying for 20th place with overall scores of 36% and C- grades, along with Spain’s BBVA. In joint 23rd place were Germany’s Commerzbank and Danske Bank of Denmark, both scoring 33% and graded C-, and DZ Bank in 25th place.

Average performance on biodiversity lagged behind climate across all banks surveyed, with a mean score of 35% compared to 48% for climate.

ShareAction said all banks had room for improvement: “The average overall score achieved in this survey is 43.7% – equivalent to a C+ grade – and 19 banks did not even score half the available points. While some banks demonstrate leading practice on some topics, none do so across all areas.”

Banks unprepared for GBF

Action on climate was patchy but on biodiversity it was practically non-existent, according to the report. It said: “Banks are increasingly integrating climate into their governance processes, although it is unclear whether this drives decision-making. In contrast, biodiversity is not a priority at the board level for most of Europe’s largest banks.”

A number of banks which performed well on climate were given a lower overall score because they were ranked as failing to manage biodiversity risks adequately, notably the UK’s NatWest and La Banque Postale of France.

Most institutions said climate policy was driven at board level, but ShareAction could find few convincing examples of such oversight. In terms of biodiversity strategy, no bank was able to show that its board had initiated action in this area.

This means banks are likely to be unprepared for the policy changes that will flow from the Global Biodiversity Framework, currently being finalised at COP15 in Montreal. The framework is expected to include commitments by signatory governments to align private financial flows with its overarching objectives, and requirements for large corporates and financial institutions to report on their nature-related risks.

Part of the problem may be lack of expertise among company directors. The report noted: “A growing number of banks have at least one board member with specific climate expertise, but board-level biodiversity expertise is lacking.”

Training in sustainability is commonplace among large banks, but specific training in climate issues is less usual and in terms of biodiversity even less so.

Policies “full of loopholes”

The policies publicised by the banks are full of loopholes, according to Xavier Lerin, Senior Research Manager at ShareAction, citing a number of particular that give an inaccurate impression of banks’ restrictions on climate-negative activity.

The first concerns banks lending to clients at the corporate rather than the project level, leaving borrowers that may have carbon-intensive interests free to allocate the funds as they see fit.

“Banks like to boast about restricting certain lending activities,” said Lerin. “But fewer banks are trying to restrict lending at the corporate level.”

The report noted that the number of banks announcing asset financing restrictions on new oil and gas fields had doubled in eight months, but added that “banks are reluctant to introduce any restrictions for new oil and gas at the corporate level”, despite warnings from the International Energy Agency.

The second involves capital market activity, with banks’ advice and actions to raise funds for corporate clients typically excluded from calculations of their ESG credentials. Only Barclays were found by ShareAction to include capital markets activities in their sectoral targets.

Third, asset management is similarly unencumbered, with portfolio managers generally free to put clients’ money where they choose.

Fourth, banks tend to favour targeting reductions in carbon intensity, rather than absolute reductions in emissions, which potentially mean the overall amount of emissions they finance can go up.

In its first progress report, issued at COP27, the Net Zero Banking Alliance acknowledged this issue saying banks should provide “the full picture” on emissions trends but stopped short of insisting on absolute emissions targets.

“There are many loopholes and banks are not doing enough,” he said. On the low priority given at board level to biodiversity, he added: “You cannot reach net zero without reducing biodiversity loss.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2023 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Newsletter SignupReceive all the latest stories from the ESG Investor editorial team

Subscribe to our free weekly newsletter below and never miss a story.

Share via
Copy link
Powered by Social Snap