Our thinking

Not banking on it

23 October, 2020

The last decade has delivered so many black swan events that we’re thinking of opening an aviary. But still, according to a new report, the US banking sector is underestimating the climate change risks it faces when it comes to its lending practices. 

The report, from sustainability NGO Ceres, found that over half of syndicated lending (those loans that are so large they require multiple lenders) in the USA is exposed to climate risk. This means that the organisations the banks are lending to stand to make losses because they aren’t properly prepared for the impacts of climate change or for the transition to the low-carbon economy. This risk doesn’t just come when lending to fossil fuel companies; it is also present in loans to industries like manufacturing and transportation that are highly reliant on those fuels. And, of course, the risks that banks face have the potential to affect us all in all aspects of our lives (see: 2008).

Sector leaders are starting to move on this issue. Earlier this year, for example, the launch of Natwest’s new purpose saw them declaring an aim to halve the climate impact of their financing by 2030. Other banks have taken similar steps. And why wouldn’t they? There is an opportunity for a double-win. Being more selective with who banks lend to, and engaging existing clients on climate risks will not only hasten and stabilise the transition to a low-carbon economy, it will also reduce the risks associated with making those loans.

The report makes 13 recommendations for change to address this issue. The thirteenth is to follow the other 12 recommendations, and quickly. We would agree.

By Ben Wood