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EIB might give banks the jolt they need on climate

Synapse neurone nerve communication from Adobe 25Jun20 575x320
By Jon Hay
25 Jun 2020

The weakness of communication along the capital markets chain is one reason why so little progress has been made on greening the economy.

Individual savers, pension funds, asset managers, banks and companies all interact with their neighbours in the sequence. But at every synapse between these neurons, the signal is fuzzy and faint.

Sixty-three percent of those over 40 would want their pension funds to disinvest from companies criticised for governance or pay practices, a recent survey by Legal & General found. Yet asset owners and managers never ask their views directly, and savers rarely tell them. Politely muted complaints reach companies, but are easy for management to ignore.

This hush explains the shocking clash that while banks are happy to “educate” companies on sustainability, virtually none of them have worked out the carbon footprint of what they finance, still less started to reduce it.

Help may be coming, from an unlikely source. The European Investment Bank, in its ambition to become the EU’s Climate Bank, is being badgered by NGOs to shape up. Not only should projects it finances be aligned with the Paris Agreement, they argue — all companies and banks the EIB works with should be able to demonstrate alignment too. As GlobalCapital reports this week, the EIB is open to the idea.

Banks may feel it is not the EIB’s business to tell them to reduce their financed carbon emissions consistent with what is required to keep global warming to 1.5C. It is not their regulator, after all.

But someone’s got to. Banks’ shareholders, bondholders and regulators have failed in their duty and kept mum. If powerful clients such as the EIB find their voices, the banks might just listen.

By Jon Hay
25 Jun 2020