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Europe’s Banks Move to Greener Finance in Response to Climate Change Risks

Some of Europe’s largest banks are unveiling plans to lend and manage money in greener ways as pressure mounts to account for risks associated with climate change.

“It is coming, it’s a trend that’s started,” said Louis Douady, head of corporate social responsibility at Natixis SA in Paris. “The intention is to adapt our balance sheet to climate transition, so clearly we want to have a change in our business mix.”

Financial institutions are beginning to get on board with the global fight against climate change, a movement that was until recently the territory of non-profit organizations and environmentalists. Natixis, UBS Group AG and ING Groep NV are among lenders unveiling large-scale environmental finance and investing initiatives as central banks and regulators step up their warnings on climate risk.

Natixis is working on a new color-coded indicator that will be applied to about 60 percent of its activities to encourage more climate-friendly business. The system, due to start by year-end, uses shades of green, brown or neutral to reflect a transaction’s risk weighting on the bank’s balance sheet. The greener the project, the lighter the risk.

‘Game Changer’

UBS recently introduced a sustainable investing strategy to its wealth management arm in Switzerland, the U.K. and the Asia Pacific region that has amassed more than 2 billion euros ($2.4 billion) from investors in the first six months of the year.

“Demand for sustainable and impact investing has undeniably been on the rise in recent years,” said James Purcell, head of alternative and sustainable investments at UBS. “The game changer has been the realization that this investment strategy does not mean sacrificing returns.”

The strategy is to invest in cross-asset portfolios that include World Bank bonds, green bonds and environmental, social and governance-focused equity funds. The wealth manager expects the approach to generate returns comparable with its conventional strategies.

ING in Amsterdam is writing sustainability-linked loans where the cost of capital fluctuates depending on the environmental impact of the borrower. The bank can knock off between 5 and 10 percent of the cost if the company improves its sustainability metrics, according to Leonie Schreve, global head of sustainable finance at ING.

To date it has completed more than 15 such transactions, including a 1 billion-euro loan to electronics company Koninklijke Philips NV.

Banks are still trailing asset managers such as pension funds and insurance companies in putting climate concerns into action. Institutional investors with $68.4 trillion under management have already signed up to the Principles for Responsible Investment, pledging to incorporate environmental, social and governance factors, known as ESG, into their investment decisions.

Several have also begun to divest from fossil fuel holdings, from insurers such as AXA SA to the Church of England and Oxford University’s endowment.

Related:

  • European Corporations Given Guidance on Factoring Climate Risk in Financials
  • Allianz Expanding Climate Strategy, Doesn’t Want to Insure Coal Operations
  • Central Banks Eye Effects of Climate Risks on Oversight of Insurers, Companies: Opinion
  • World Leaders Aim to Breathe New Life into Paris Climate Pact; AXA Plans Initiatives
  • Insurance Industry Making ‘Significant Contributions’ in Climate Change Battle, Report Shows
  • Europe’s Re/Insurers Cut Coal Investments by $20B; U.S. Firms Fail to Act: Report
  • Report Calls out $361M of Euro Insurer Assets in Expanding Coal Concerns
  • Bank of England Governor Warns Investors Failing to Consider Climate Risks
  • Companies May Soon Be Required to Disclose Financial Impact of Climate Risk
  • Many Large Investors Tackle Climate Risks with Greener Investments

Copyright 2018 Bloomberg.

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