A new report examining 28 of the world’s largest banks on their management of climate-related risks concludes they are failing to align their business practices with targets to keep global temperature rises below two degrees.
The investor assessment comes despite praising banks for introducing measures such as climate stress testing, carbon footprinting and governance for climate risk.
The report, backed by investors with $500 billion in AUM and led by Boston Common Asset Management, is a follow up to the 2015 report “Are Banks Prepared for Climate Change?”. Today’s analysis finds some notable progress by major banks over the last year including:
- Over 70% of responding banks now undertaking carbon footprints or environmental stress tests, including banks such as Citigroup.
- Over 85% of responding banks disclosed financing or investment in renewable energy. For example, National Australia Bank plans to invest AUD 18 billion over seven years in energy efficiency, renewable energy, and low-emissions transport.
- Over 80% have adopted more explicit oversight of climate risk at board level; and almost two-thirds have established performance goals.
- Some banks, such as Credit Suisse now revising their policies to restrict lending to the coal mining and thermal power generation sectors. Others such as Standard Chartered are developing additional assessment criteria on climate risk for energy sector clients aligned with the Paris 1.5 degrees climate scenario.
However with the Paris Agreement now entered into force, the report concludes that banks are still not doing enough to embed climate risk into their assessment of credit, or taking full advantage of the opportunities the low-carbon transition presents. Shortcomings of the banking sector include:
- Over 80% of responding banks are not yet integrating the results of environmental stress testing into their business decisions.
- Only 35% of banks disclosed goals for energy efficiency financing, and less than 40% have set targets for renewable energy financing.
- Only 50% of banks have explicitly linked climate-strategy goals to executive compensation.
Boston Common is encouraged by the marked progress at many of the largest global banks in addressing climate change, and commend their willingness to hold in-depth discussions and advance the dialogue around climate risk. Notably, over 80% of the banks engaged have implemented substantive policy changes since the end of 2015 related to climate risk. However the core conclusion that the banking sector as a whole is not doing enough to measure and manage the material risks from carbon intensive sectors is a major concern to investors. For example, bank lending and investment to carbon intensive sectors (e.g. coal mining, extreme oil such as Arctic drilling or LNG) continues to significantly outpace green financing. In the past three years, European and North American banks have financed $786 billion to some of the most carbon intensive sectors.
The investors behind this report call on banks to not only expand the use of tools to collect climate data – but most crucially to integrate this data into their decision making
Lauren Compere, Managing Director at Boston Common Asset Management, said:
“From stress tests to strategy, bonuses to benchmarks, investors are very pleased to see the new tools, policies and programs that banks are adopting to manage climate risk. But there remains room for improvement and serious issues of integration that must be resolved. The investors behind this report call on banks to not only expand the use of tools to collect climate data – but most crucially to integrate this data into their decision making process. There is no point in having tools without putting them to effective use.
“It makes little financial sense that bank financing of carbon intensive sectors such as coal – likely to become stranded assets, still outpaces green financing.”
The investors call on banks to take actions such as:
- Introducing goals and executive compensation linked to climate strategy;
- Expanding the use of carbon assessment tools (such as environmental stress tests) and integrating them into the decision-making process;
- Establishing explicit targets to reduce exposure to sectors vulnerable to climate change and increasing investment in renewable energy, energy efficiency, and climate adaptation; and
- Support industry collaborations (such as the Task Force on Climate-related Financial Disclosures) that increase the pace of change and use their public voice on climate action to encourage better government policy aligned with a below 2 degrees Celsius future.
Sara Nordbrand, Church of Sweden said:
“The impact of the Paris Agreement is clear – climate change is rising up the agenda and several banks are trying to grasp opportunities in line with the world’s climate goals. SEB is one example, being one of ten banks and investors launching the Positive Impact Manifesto and representing 7.6 % of the global green bonds market. At the same time all banks are grappling with how to measure and manage risks. The questions we are raising during this engagement aim to make them dive deeper and review strategies and policies in order to contribute more to the urgent transition”.
Stuart Palmer, Australian Ethical Investment said:
“This global initiative has contributed an important international voice to local investor and community scrutiny of the Australian major banks’ climate responses. Following the initial engagement, each of the banks made encouraging statements at the end of 2015 to align their businesses with the 2 degree future agreed in Paris. The ‘refreshing’ of the engagement in 2016 was again well-timed, coinciding with a focus on practical questions about whether the banks will fund specific thermal coal projects planned for Queensland – leading to some welcome indications that the answer will very likely be ‘no’.”
Are the UK Governments Plans for the Energy Sector Smart?
The revolution in the energy sector marches on, wind turbines and solar panels are harnessing more renewable energy than ever before – so where is it all leading?
The UK government have recently announced plans to modernise the way we produce, store and use electricity. And, if realised, the plans could be just the thing to bring the energy sector in line with 21st century technology and ideologies.
Central to the plans is an initiative that will see smart meters installed in homes and businesses the length and breadth of the country – and their aim? To create an environment where electricity can be managed more efficiently.
The news has prompted some speculation about how energy suppliers will react and many are predicting a price war. This could benefit consumers of electricity and investors, many of whom may be looking to make a profit by trading energy company shares online using platforms such as Oanda – but the potential for good news doesn’t end there.
Introducing New Technology
The plan, titled Smart Systems and Flexibility is being rolled out in the hope that it will have a positive impact in three core areas.
- To offer consumers greater control by making smart meters available for all homes and businesses by 2020. Energy users will be able to monitor, control and record the amount of energy they use.
- Incentivise energy suppliers to change the manner in which they buy electricity, to offer more smart tariffs and more off-peak periods for energy consumption.
- Introduce new standards for electrical appliances – it is hoped that the new wave of appliances will recognise when electricity is at its cheapest and at its most expensive and respond accordingly.
How the Plans Will Affect Solar Energy
Around 7 million houses in the UK have solar panels and the government say that their plan will benefit them as they will be able to store electricity on batteries. The stored energy can then be used by the household and excess energy can be exported to the national grid – in this instance lower tariffs or even payment for the excess energy will bring down annual costs significantly.
The rate of return on energy exported to the national grid is currently between 6% and 10%, but there are many variables to take into account, such as, the cost of battery storage and light levels. Still, those with state-of-the-art solar electricity systems could end up with an annual profit after selling their excess energy.
The Internet of Things
Much of what the plans set out to achieve are linked to the now ubiquitous “internet of things” – where, for example, appliances and heating systems are connected to the internet in order to make them function more smartly.
Companies like Hive have already made great inroads into this type of technology, but the road that the government plans are heading down, will, potentially, go much further -blockchain technology looms and has already proved to be a game changer in the world of currency.
It has already been suggested that the peer to peer selling of energy and exporting it to the national grid may eventually be done using blockchain technology.
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Don and Alex Tapscott, Blockchain Revolution (2016)
The upshot of the government’s plans for the revolution of the energy sector, is that technology will play an indelible role in making it more efficient, more flexible and ultimately more sustainable.
4 Case Studies on the Benefits of Solar Energy
Demand for solar energy is growing at a surprising rate. New figures from SolarPower Europe show that solar energy production has risen 50% since the summer of 2016.
However, many people are still skeptical of the benefits of solar energy.Does it actually make a significant reduction in our carbon footprint? Is it actually cost-effective for the company over the long-run?
A number of case studies have been conducted, which indicate solar energy can be enormously beneficial. Here are some of the most compelling studies on the subject.
1. Boulder Nissan
When you think of companies that leverage solar power, car dealerships probably aren’t the first ones that come to mind. However, Boulder Nissan is highly committed to promoting green energy. They worked with Independent Power Systems to setup a number of solar cells. Here were the results:
- Boulder Nissan has reduced coal generated electricity by 65%.
- They are on track to run on 100% renewable energy within the next 13 years.
- Boulder Nissan reduced CO2 emissions by 416,000 lbs. within the first year after installing their solar panels.
This is one of the most impressive solar energy case studies a small business has published in recent years. It shows that even small companies in rural communities can make a major difference by adapting solar energy.
2. Valley Electric Association
In 2015, the Valley Electric Association (VEA) created an 80-acre solar garden. Before retiring from the legislature, U.S. Senate Minority Leader Harry Reid praised the new project as a way to make the state more energy dependent and reduce our carbon footprint.
“This facility will provide its customers with the opportunity to purchase 100 percent of their electricity from clean energy produced in Nevada,” Reid told reporters with the Pahrump Valley Times. “That’s a step forward for the Silver State, but it also proves that utilities can work with customers to provide clean renewable energy that they demand.”
The solar energy that VEA produced was drastically higher than anyone would have predicted. SolarWorld estimates that the solar garden created 32,680,000 kwh every year, which was enough to power nearly 4,000 homes.
This was a major undertaking for a purple state, which may inspire their peers throughout the Midwest to develop solar gardens of their own. It will reduce dependency on the electric grid, which is a problem for many remote states in the central part of the country.
3. Las Vegas Casinos
A number of Las Vegas casinos have started investing in solar panels over the last couple of years. The Guardian reports that many of these casinos have cut costs considerably. Some of them are even selling the energy back to the grid.
“It’s no accident that we put the array on top of a conference center. This is good business for us,” Cindy Ortega, chief sustainability officer at MGM Resorts told Guardian reporters. “We are looking at leaving the power system, and one of the reasons for that is we can procure more renewable energy on the open market.”
There have been many benefits for casinos using solar energy. They are some of the most energy-intensive institutions in the world, so this has helped them become much more cost-effective. It also helps minimize disruptions to their customers learning online keno strategies in the event of any problems with the electric grid.
4. Boston College
Boston College has been committed to many green initiatives over the years. A group of researchers experimented with solar cells on different parts of the campus to see where they could produce the most electricity. They discovered that the best locationwas at St. Clement’sHall. The solar cells there dramatically. It would also reduce CO2 emissions by 521,702 lbs. a year and be enough to save 10,869 trees.
Boston College is exploring new ways to expand their usage of solar cells. They may be able to invest in more effective solar panels that can generate far more solar energy.
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