Banks sign responsibility code but remain deep in fossil fuels

Investors have hailed the new ethics code for banks, the UN Principles for Responsible Banking, as an important advance in making banks more sustainable. But they want to see the fine words lead to action — above all, real decarbonisation.

  • By Jon Hay
  • 19 Oct 2019
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The six principles, launched last month in New York, are modelled on the Principles for Responsible Investment, founded in 2006, which have some 2,000 signatories. The Banking Principles have started strongly, with 130 banks owning $49tr of assets. Most large international banks have joined — exceptions include HSBC and UniCredit.

“I’m very supportive of the principles,” said Lauren Compere, director of shareholder engagement at Boston Common Asset Management. “It’s a step further than banks just looking at risk on their balance sheets. The banks at the table are looking not just at the risks to their business but at risk and opportunity to people and planet.”

Compared with the six simple PRI principles, which total only 80 words, the PRB creed is more than twice as long and more complex.

In one important regard, the PRB is more explicit. The first principle is: “We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.”

Val Smith, chief sustainability officer at Citigroup, said that, given the scale of the economic transition required to fulfil the Paris Agreement and SDGs, “this is ambitious. We don’t know if it’s possible — it’s certainly a global effort — but it makes sense to put ourselves out there and report on how we are making progress, report our impacts.”

Citi is the only signatory among the big six US banks.

Adherents will move to integrate environmental, social and governance considerations into their decision making, disclose their climate risks as recommended by the Task Force on Climate-Related Financial Disclosures and help clients transition to lower carbon.

But observers are wary. Banks such as Citi are striving to understand and manage their climate risks better. But Citi was the third largest bank for financing fossil fuels in 2018, with $43bn, according to an annual study by NGOs led by Rainforest Action Network. Apart from Barclays and MUFG, all the top 12 are US or Canadian banks.

A paper by the World Resources Institute compared these figures with banks’ sustainable finance commitments. Citi pledged in 2014 to raise $100bn of environmental financing in the next 10 years. After five years it had done $95bn. But even $20bn a year is less than half its fossil fuel financing.

“Banks are actually financing fossil fuel expansion,” said Compere. “This stuff needs to stay in the ground.”

  • By Jon Hay
  • 19 Oct 2019

Global Green Bonds

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 Bank of America Merrill Lynch 13.40 57 7.42%
2 Credit Agricole CIB 10.17 61 5.63%
3 BNP Paribas 9.85 60 5.45%
4 HSBC 9.65 70 5.34%
5 JPMorgan 8.27 54 4.58%