How banks are fighting climate change
July 11, 2017 3:31 PM
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When the U.S. withdrew from the Paris Agreement, business leaders across the country called on the private sector to step up their own efforts to reduce greenhouse gas emissions and ultimately limit global warming to 2 degrees Celsius. From new corporate governance practices to energy efficient upgrades, here’s a look at some of the ways the banking sector is combating climate change.
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Multinational action
Eleven global banks — including Barclays, Citigroup, UBS, Banco Santander and TD Bank Financial Group — have started a pilot project to put in motion recommendations of a task force established by Bank of England Gov. Mark Carney, a United Nations arm said Tuesday. Companies feeling the effects of climate change (including credit risks tied to fossil fuel producers) should conduct analyses based on different scenarios and include these results in their financial reports, the task force said.
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Eco-conscious stress testing
In 2015, PNC Financial began environmental stress testing, analyzing how issues like the EPA’s Clean Power Plan, for instance, could affect its wholesale credit portfolio; it has committed to annual environmental stress tests, according to a Boston Common Asset Management report issued last year. UBS uses scenario modeling to figure out how severe climate events and increased regulation might impact its portfolios, and JPMorgan Chase has also analyzed how new regulations might affect its global power portfolio, the report said. JPMorgan pledged to stop direct financing of new coal mines and coal power plants in rich countries.
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Lobbying for a carbon tax
Banco Santander is the only financial institution among the founding members of the Climate Leadership Council, a private-sector group that advocates a carbon dividends framework to fight climate change. That framework would implement a gradually increasing carbon tax and a carbon-border adjustment to prod companies to reduce their greenhouse gas emissions. In the U.S., a “carbon dividend” would then be paid back to members of the public out of that carbon tax. The proposal’s final step — a significant rollback of environmental regulations — has stirred controversy.
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Switching to solar
Melrose Bank in Massachusetts recently installed a rooftop and carport solar array that will supply more than half of its electricity. The $271 million-asset bank installed 138 solar panels that will produce 52,000 kilowatt-hours of electricity annually. That ultimately translates to a 36-ton reduction in carbon emissions each year. Melrose says it expects the solar array to pay for itself in less than seven years.
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Branch upgrades
JPMorgan Chase announced in June that it would retrofit 4,500 branches with new energy management technologies . The move is expected to reduce electric and gas consumption by 15%. Already, the $2.5 trillion-asset bank has outfitted 2,500 branches with LED lighting, which cut its electric lighting energy consumption by 50%.
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That's a lot of cars
At least four states have set up green banks, or public-private partnerships that aim to generate more private investment into renewable energy projects in their area. Green banks are seeded with public money, and they work in part by designing financing solutions for renewable energy projects. The Connecticut Green Bank, the first of its kind, now estimates that for every $1 it spends, an additional $6 in private capital is spent on clean energy in the state. Meanwhile, the New York Green Bank, which launched in 2014, invested $291.6 million in clean energy projects and generated $2.7 million in net income for its last fiscal year. The state estimates this will eliminate between 4.3 million and 6.4 million metric tons of greenhouse gas emissions, the equivalent of taking at least 50,000 cars off the road for 20 years.
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Shrinking carbon footprint
Last fall, Bank of America announced plans to achieve carbon neutrality by 2020. B of A wants to reduce greenhouse gas emissions by 50%, energy use by 40% and water use by 45%. The bank plans to do this by consolidating office space, purchasing 100% renewable electricity and utilizing carbon offsets.
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Compensation and climate
Barclays has set its own goals to help accelerate the transition to a low-carbon economy. That includes financing wind, solar and waste-to-energy projects largely in the agricultural sector, as well as an expansion of its Green Bonds portfolio. The $1.56 trillion-asset bank has also linked senior executive compensation to company performance on those climate-related goals, the Boston Common report says.
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Financing renewables
TD Bank has been consistently financing renewable energy projects since 2009. TD has now committed more than $12 billion to the low-carbon economy, which includes solar and wind, hydroelectric and geothermal energy. The $775 billion-asset bank was also the first bank in North America to become carbon neutral, in 2010.
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Community banks can play, too
Laurie Stewart, CEO of the $575.4 million-asset Sound Community Bank in Seattle, spearheaded the development of a sustainability task force to promote corporate social responsibility. Though the task force also focuses on communities, employees and other stakeholders, environmental issues are a major priority, and the bank publishes a sustainability insert in its annual report documenting its results. Last year the bank was able to eliminate more than 175,000 printed pages by persuading many customers to convert to electronic statements, and it eliminated the need for more than 3 million pieces of paper by digitizing its loan files.
