Despite the many uncertainties in today’s world, what is certain is that we now have a unique opportunity to rebuild and transform our economy into a sustainable and socially responsible enterprise. And it will be the banks that lead the way, writes Sarah Whitehead, Vice President at Moorgate Finn Partners.
To have a healthy and flourishing humankind, a healthy planet is essential. As such, the transition to a greener, more sustainable environment is an increasingly pressing priority for both public and policy makers worldwide – something all stakeholders must play a part in. More so than others – due to their central role in global economies and societies – banks have a critical role to play in helping limit the effects of global warming.
This role has been recognised within the banking community, which is making great strides in turning ideas and ambitions into actions and realities. In 2015, the Paris Agreement delivered a consensus that to address climate change, significant economic transition is needed. What’s more, last year the United Nations (UN) launched the Principles for Responsible Banking, which has seen 180 banks holding USD 47 trillion in assets (one third of the global banking sector) sign up to join the fight.
In the Principles, banks have committed to strategically aligning their businesses with the goals of the Paris Agreement on Climate Change and the UN’s Sustainable Development Goals, and to massively scale up their contribution to achieving both. By signing up to the Principles, banks have declared that “only in an inclusive society founded on human dignity, equality and the sustainable use of natural resources” can their clients, customers, and businesses thrive.
Indeed, banks are where the financial sector and real economy meet, and are pivotal to driving investment in all sectors – whether that be infrastructure, transport, or real estate – all of which need to adopt a stronger emphasis on producing less carbon. Internationally, the European banks are leading the way for their APAC and US peers.
A number of investment banks in the region have already begun incorporating climate risk into their credit decision-making process. For example, French investment bank Natixis (a Finn Partners client) introduced a mechanism that results in them allocating capital to financing deals based on their climate impact, and have increased the proportion of their balance sheet dedicated to green lending.
As the world recovers from the impact of extraordinary impact of COVID-19, there is a unique opportunity: precisely because the economic havoc wreaked by the virus has meant that governments and financial institutions have the power and will to act. In some markets, for example, HSBC offers preferential interest rates for borrowers buying green cars and mortgages.
From financing housing developments to influencing investors’ asset portfolios, banks have a central role to play in ensuring a green recovery. Indeed, if we do not ensure that our post COVID-19 world is truly sustainable, we risk locking our future into unsustainable models that are less resilient and more exposed to future shocks, be these economic, epidemiologic or environmental.