NGO InfluenceMap finds large discrepancies between public statements, policy efforts and association membership; NZBA considers inclusion on trade association membership in its guidance.
Investors may be overlooking the issue of climate-related lobbying by banks in the face of increasing evidence of a lack of consistency between their climate commitments and their positions on legislative and regulatory issues.
NGO InfluenceMap has released a new report showing that despite their high-level support for action on climate change, the largest US banks are not supporting key US climate-related policy measures and retain links to industry associations that are opposing key climate policies and regulations.
InfluenceMap assessed 15 of the largest US banks along with five industry associations that represent them on financial policy and found while they had positive top-line messaging on climate and sustainable finance, they are more negatively engaged on specific sustainable finance policies, with industry associations even more negatively engaged.
Despite banks’ widespread recognition of climate risk as financial risk, their industry associations have pushed back on emerging climate risk regulations, finds the report. Nine of the 15 are members of the US Chamber of Commerce which has been actively opposed to climate policy in the US, including running strategic campaigns against both the Build Back Better Act and the Inflation Reduction Act. Banks also retain membership to other cross-sector industry associations that have been negatively engaged on climate policy in the US.
Carol Storey, Climate Engagement Lead at Schroders, told ESG Investor that the issue of climate-related lobbying by banks was potentially being given less attention by investors compared to other sectors. “Investors have been focused on other sectors such as utilities, oil and gas, and car manufacturing. We collaborated with other investors on the IIGCC’s climate lobbying disclosure campaign aimed at these types of sectors. But there hasn’t been an equivalent push for banks.”
Storey, who co-chairs Institutional Investors Group on Climate Change (IIGCC’s) banking working group, has been engaging with banks on climate change at Schroders since 2020. During that time, she’s seen the sector improve on its climate engagement assessments across regions.
But it is in the early stages of engaging on lobbying with banks, said Storey. Schroders voted in favour of the first banking shareholder climate lobbying proposal at Wells Fargo this year.
In June, the IIGCC published a ten-point standard outlining investor expectations for banks’ net zero transition strategies, which included policy engagement.
Although not focusing specifically on banks, investors have increased their scrutiny of investee firms’ climate lobbying activities. A group of pension schemes recently took auto manufacturer Volkswagen to court over its refusal to disclose information about climate lobbying.
Last year, a group of institutional investors issued a disclosure standard aimed at ensuring investee companies’ climate change lobbying aligns with the goals of the Paris Agreement.
Anti-ESG sentiment affecting banks
The InfluenceMap report also focused on the anti-ESG wave in the US, finding that there has been no engagement on this from banks or large trade associations they are members of, despite some banks losing business because of the introduction of anti-ESG policies in some US states.
Storey said investors should start raising this in their dialogue with banks on lobbying too.
Cleo Rank, Analyst-Sustainable Finance at InfluenceMap, said the NGO wanted to look at the banking lobbying issue specifically because of the growing anti-ESG sentiment in the US. She said state-level banking associations in the US had instances of opposing anti-ESG bills, but the big banks themselves and their industry associations had been silent.
She added that both banks and their trade associations often talked about how real economy climate policies were needed rather than regulation targeted at the financial sector to achieve climate action, but then both parties failed to push for ambitious, real economy climate and emissions reduction policies.
Large US-based members of the Net Zero Banking Alliance (NZBA) were targeted last year by anti-ESG campaigners, who claimed signatories could be in breach of anti-trust laws, as part of a wider effort to introduce laws preventing financial institutions from factoring ESG criteria into lending or investing criteria.
According to a spokesperson for the NZBA, the alliance’s commitment statement and Guidelines for Climate Target Setting for Banks did not currently include guidance on their membership of and engagement with industry associations. But that public policy engagement was one area under consideration for inclusion in a potential review of the guidelines, due to be completed in April 2024.
Despite not being focused on banks’ lobbying activities to date, they could be encompassed by investors’ future climate stewardship activities.
In particular, investors look set to have to engage with banks on climate change more to meet their net zero commitments as Scope 3 – emissions create in a company’s value chain – start to be factored into emissions reduction targets.
UK pension pool Border to Coast this year announced it would escalate engagement with banks on climate change for this reason. Colin Baines, Stewardship Manager at Border to Coast, said this year it had voted against the Chair of Sustainability Committee at banks for materially failing the first four indicators of the Transparency Pathway Initiative (TPI) framework for the banking sector.
“The majority of these votes were at US banks, which are now clearly lagging behind their European counterparts in several areas. We will continue to use our shareholder influence and AGM votes to encourage the banking sector to decarbonise and manage climate risk to standards we consider adequate,” he said.