European banks’ green finance propositions fall short

A new study by ShareAction suggests that European banks’ green finance objectives are far from adequate to meet the challenges posed by climate change. The study reviewed the green finance claims of 20 of the largest lenders in the EU, UK, Switzerland and Norway and found that “targets and disclosures are not fit for purpose and can lead to misleading claims”.

The findings come at a time when the world’s hopes of limiting global warming to the tipping point of 1.5 degrees Celsius are fading. The U.N. estimates that the likelihood of achieving that goal is now only 14 percent, as fossil fuels continue to receive funding that could be used for green projects. The UN warned earlier this week that average temperatures are expected to rise by 3 degrees Celsius at the current rate of emissions reductions.

ShareAction is a U.K.-based nonprofit organization that promotes banks’ response to climate change. The nonprofit has successfully pushed a number of lenders, including HSBC Holdings and Barclays, to commit to reducing emissions.

European banks’ green finance propositions fall short

ShareAction also criticized the industry for failing to publish a methodology explaining the metrics on which green claims are based.

In addition, the study found that most banks offer products and services that should not be categorized as green finance. shareAction said in the report, “Banks do not always disclose which activities count as green, and those that do consider certain controversial activities to qualify.

Given the key role that banks can play in steering the global economy away from environmentally harmful activities, ShareAction recommends that the banking industry take a number of steps to help stakeholders analyze the role it plays.

The recommendations include publishing a transparent methodology on green financing targets and ensuring that they “only cover financing activities that lead to, or contribute to, bank capital allocation,” ShareAction said.

Requiring banks to report on the impact of their green financing activities is important, the nonprofit said, and ShareAction added that the banking industry should also be required to disclose its position on green-related regulatory issues and its membership in climate-related trade associations.

Other points:

ShareAction says that banks typically do not include capital markets activities in their green financing objectives. A notable exception is Barclays, which weights so-called facilitated emissions proportionately by 33%.
The analysis is also concerned about the lack of reporting on ‘impact’ and ‘additionality’. An example of this is UBS, where ShareAction noted in its Green Finance Allocation Report 2022 that 93% of its mortgages come from refinancing. Standard Chartered says its sustainable finance asset base grew by 45% between July 2021 and September 2022, largely thanks to the identification and labeling of $3.8 billion in so-called green mortgages. However, according to ShareAction, “the lack of reporting on impact and additionality makes it difficult to assess exactly what the bank is realizing in terms of the scale of its green finance.”
ShareAction also says that most of the banks it studied include products and services that are not related to finance in their green goals. Using Banco Bilbao Vizcaya Argentaria SA as an example, the organization cited the bank’s €300 billion ($330 billion) sustainable finance goal for 2025, which includes structured deposits. The nonprofit also singled out HSBC Holdings Plc’s 2030 goal of $750 billion to $1 trillion because it includes asset management.
ShareAction said, “Green finance targets should cover only financing activities that lead to the allocation or facilitation of bank capital. This includes lending, proprietary investment and capital market facilitation.”
Speakers responded:

Spokesmen for UBS, Barclays and Standard Chartered all declined to comment.
A spokesperson for HSBC said it seeks to “adopt market standards in the provision of sustainable finance and the identification and reporting of sustainable finance and investment to meet our objectives in our annual disclosures”. The bank added that “supporting the transition to net zero and working with our clients to help them diversify and decarbonize is a top priority”.
A BBVA spokesperson said the bank takes a “very robust approach” to its sustainability criteria and referred to its framework to explain why it includes structured deposits in its objectives. The bank reviews its portfolio every quarter and removes assets deemed to no longer meet the criteria.

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