Big investors take aim at banks over climate change risk

The devastation caused by Hurricane Irma has added urgency to the fight against climate change © AP

A coalition of institutional investors managing more than $1tn in assets is demanding that 60 of the world’s largest banks take action to protect the world from the threat of catastrophic damage due to climate change.

The devastation caused by Hurricane Irma across the Caribbean and Florida has added urgency to efforts by pension funds and asset managers to step up the fight against climate change.

Letters have been sent to the chief executives of banks including HSBC, Lloyds, Bank of America, JPMorgan Chase, Morgan Stanley and Deutsche Bank to demand more information about their exposures to climate-related risks and their plans to ensure compliance with the landmark agreement to tackle global warming reached by governments in Paris in December 2015.

The letters ask that bank leaders provide details of their plans to support the transition to a low-carbon economy, which could require up to $93tn of investment by 2030.

Banks are exposed to climate-related risks through their lending activities as well as other financial services, including project finance and equity and debt underwriting.

“Millions of people have an interest in how banks respond to the threat of climate change,” said Catherine Howarth, chief executive of ShareAction, the responsible investment campaign group.

The plea to bank leaders has drawn support from investment managers including Aegon, Candriam, Hermes and Jupiter, along with Boston Common Asset Management, which co-authored the letter with ShareAction.

Isabelle Cabie, global head of responsible development at Candriam, the €100bn Franco-Belgian fund house, said, “Better disclosure of climate risk will allow long-term investors to judge how specific banks are performing compared to their peers.”

Lauren Compere, director of shareholder engagement at Boston Common Asset Management, said that addressing the challenges of climate change required urgent action, the mobilisation of vast sums of private capital and a break from business as usual by companies.

Ms Compere said new best-practice standards were emerging at some banks, such as Barclays, which has set the delivery of financing to accelerate the transition to a low-carbon economy as a key objective.

Barclays, which will receive a letter from the investor group, has linked compensation awards to senior executives with the meeting of climate strategy goals.

Campaigners, companies and investors will gather in New York next week for the first international climate conference since President Donald Trump’s announcement in June that the US would withdraw from the Paris accord.

Mark Carney, governor of the Bank of England, has warned that investors risk “potentially huge” losses from the impact of climate change.

A series of recommendations for the disclosure by companies of clear, comparable and consistent information about the risks presented by climate change were published in June by a task force commissioned by Mr Carney for the Financial Stability Board, the Basel-based global financial regulator. However, the new disclosure framework remains voluntary. This has prompted concerns that companies that produce high levels of environmentally damaging pollutants will not comply.

Roland Bosch, an associate director at Hermes EOS, which advises investors with more than €300bn of combined assets on corporate governance issues, said better disclosure from companies in sectors particularly exposed to climate change was required.

“The banking sector can do more to expand its disclosure of how climate risks and opportunities are being assessed and managed,” said Mr Bosch.