Review finds mixed progress on Climate Principles

London, 4 February: The five financial institutions which founded the Climate Principles have further to go in integrating climate analysis into their operations, according to an independent review of their progress.

Signatories to the Climate Principles pledge to cut their operational carbon footprint, make business decisions that reduce climate risk and develop carbon opportunities, and disclose their progress, among other things.

Assessing how well the original adopters – Crédit Agricole, HSBC, Standard Chartered, Munich Re and Swiss Re – have implemented these principles, PricewaterhouseCoopers (PwC) found that the banks and reinsurers have most to do in the integration of climate change analysis into day-to-day business activities.

The report says: “There are several strong examples of good and leading practice but overall more needs to be achieved to ensure that the adopting institutions manage the risks and take full advantage of the opportunities in the financial services sector as climate change considerations become more important for their clients and customers.”

PwC could document least progress against the Principles in the project finance activities of the institutions, as restricted disclosure of information made it difficult for the consultancy to assess implementation.

This section of the Principles is only applicable to Crédit Agricole, HSBC and Standard Chartered. However. PwC concluded that none could demonstrate they were implementing programmes on the four project finance criteria, or that they had mature programmes – instead 67% of the institutions’ programmes were at the “understanding approaches” stage – the lowest grading available – and 33% were “testing approaches”.

Progress was also relatively limited in incorporating the Principles into retail banking – 83% of the three banks’ efforts were at the testing stage and none had mature programmes. On retail banking, the signatory banks promise to conduct research into the potential impacts of climate change on customers, for example, and to develop products, services and strategies to address those impacts.

Jon Williams, a partner in the sustainability and climate change business at PwC and former head of sustainability at HSBC, said: “More can always be done and two areas in particular stand out for focus in 2010 – project finance and retail banking.”

On corporate finance, which includes facilitating investment in low-carbon technology and GHG reduction projects, the three banks delivered a mixed performance, with the majority of their efforts at the implementation stage.

The insurers performed particularly well, PwC found, in converting research on climate risks into new products and services.

The adopters are doing best in meeting the first requirement of the Climate Principles, to manage their internal greenhouse gas emissions. Across five criteria, the consultants ranked 68% of programmes to manage their carbon footprint as mature, while 32% were implementing such programmes.

Three signatories also have mature programmes for incorporating climate or carbon issues into their research activities, and utilising the findings to develop products, the report found, and “good progress” has been made in engaging with external stakeholders.

Meanwhile, F&C Asset Management has became the first additional adopter of the Climate Principles since their launch in 2008. The fund manager’s chief executive, Alain Grisay, said: “If there is one lesson to be learned from the credit crisis, it is that apparently rational, competitively-driven behaviour can have tragic consequences when there is a systemic failure to recognise and price in unconventional risks.

“The signs of a looming climate crisis are now clearly before us. As major participants in the financial markets, we have the ability to facilitate, through targeted financing, the transformation to a low-carbon economy.”