Supporting the energy transition, committing to green finance and taking into account the new risks associated with global warming are all on the agenda for most banking establishments. With pressure mounting on the sector, on March 1 the European Banking Authority (EBA) launched a consultation to establish the extent to which players are able to publish their exposure to climate risk.
Banks' colossal carbon footprint
In a recent report, Oxfam criticizes a number of companies, particularly banks, for their colossal carbon footprints. In this document, based on figures provided by Carbon4 Finance, the NGO notes that"no business sector is aligned with the Paris Agreement". As a reminder, the Paris Agreement aims to strengthen the global response to the threat of climate change, in particular by containing the average rise in global temperature to below 2 degrees above pre-industrial levels.
Of the 35 French companies studied by Oxfam, only three (EDF, Schneider Electric and Legrand) have a carbon footprint "likely to keep them on a trajectory compatible with global warming of less than 2 degrees", says the report. Paradoxically, ten companies, including three banks (BNP Paribas, Crédit Agricole and Société Générale), have "a trajectory associated with warming in excess of +4 degrees".
So, while since 2015 the banks have all publicly committed to aligning themselves with the Paris Agreement, many players feel that their announcements are insufficient. According to Oxfam, government intervention is essential.
Climate transparency: EBA takes stock of banks' progress
As the European timetable gathers pace, the European Banking Authority has launched a consultation on whether the banking sector is capable of publishing its exposure to climate risk. The regulator has based its decision on the Green Asset Ratio, a new indicator that tracks banks' involvement in climate-friendly activities. Published annually, it will determine the percentage of loans, advances and debt securities deemed ecologically sustainable out of total assets.
At the same time, EBA conducted a survey of a dozen banks to assess their progress in the area of climate transparency. The survey shows that, while most banks have begun to take up the subject, they have generally not developed processes for assessing and calculating their alignment with key performance indicators. The findings are even more worrying in the case of smaller banks, which "have not even begun to take steps, or are only in the early stages of doing so", says the Autorité.
To relieve banks in the midst of a health crisis, EBA has accepted "estimates" for the first publications due in 2022, an unusual degree of flexibility that shows the scale of the challenge.