Investors are being urged to engage with banks using their voting rights to increase the role banks play in the transition to a low-carbon economy.
A new report from London-based investment advisory ShareAction has called on investors to use their voting rights to urge banks to play a more proactive role in the transition to a low-carbon economy, by “providing the major injections of capital required to finance technologies, infrastructure and the transition of traditional industries, as well as to cover the costs of adaptation.” Figures from the International Energy Agency estimate that $359 trillion worth of investment is required by 2050 to ensure the world avoids global warming exceeding 2°C.
“At a portfolio-wide level, the only way that investors can protect themselves against high-risk climate scenarios is through a timely and economy-wide decarbonisation,” said Catherine Howarth, Chief Executive of ShareAction. “Banks are uniquely placed to help catalyse this transformation. Fiduciary investors seeking to mitigate exposure to climate risks have everything to gain from strategic engagement with the banking sector.”
The new report, Banking on a Low Carbon Future, published this week by ShareAction, outlines ways for investors to engage with banks and question banks on their environmental- and energy-related policies. The level of climate-related risks to investors continues to increase, and more and more investors are beginning to make decisions based not only on the likelihood that high-carbon-related investments will be a financially poor investment over the long term, but also their perceived moral obligation to invest in assets which will serve to propel the transition to a low-carbon economy.
The report makes two key recommendations for banks to take:
- Wind down the provision of financial services to high carbon activities and to clients who fail to transition to lower carbon business models
- Stop financing coal-dependent companies altogether
The report also calls on banks — and investors to urge their banks — to scale up the financing of sectors that are involved in the transition, including renewable energy, energy efficiency, climate adaptation, etc.. Banks also have a tremendous amount of lobbying power that can be used to drive strong policies to help in the transition as well.
“It is critical that the entire financial services industry really gets behind the global consensus on climate change achieved at COP 21 in Paris,” said António Simões, Chief Executive Officer of HSBC Bank. “The important thing right now is that the climate agenda becomes an integral part of our day-to-day decision making process. Banks working to ensure the transition to a low carbon future is vital to achieve this aim.”
“Hundreds of thousands of people are demanding that the world’s biggest banks take serious action on climate change,” added Johan Frijns, Director of BankTrack. “Many of these people will have savings that have been invested in those companies. Big investors like our pension funds should take heed of ShareAction’s guidelines, and urge banks to step up their game and stop financing climate-destructive activities.”