Green lending

Green lending

Subject – Environment

Context – Green lending: World’s biggest banks’ latest initiative at COP26 is a step backwards

Concept –

• Over 450 of the world’s banks have committed to a new initiative at the COP26 UN Climate Change Conference which is designed to decarbonise their investments.
• Overseen by former Bank of England supremo Mark Carney, the banks and other financial institutions signing up to Gfanz (the Glasgow Financial Alliance for Net Zero) are pledging to report annually on the carbon emissions linked to the projects they lend to.
• They are also aiming to provide trillions of dollars in green finance, while committing to net zero emissions across the board by 2050.
• Major signatories to the initiative, which was originally unveiled in April, include Citi, Morgan Stanley and Bank of America.
• In 2019, the UN General Assembly exuberantly launched its principles of responsible banking (PRBs) with similar goals in mind.
  • The banks that signed up agreed, among other things, to “work with their clients to encourage sustainable practices” and to “align their business strategy” to the UN sustainable development goals and the Paris climate agreement.
  • So far, many of the biggest banks in the world have not signed the PRBs, even though the principles have been the gold standard until now for committing to decarbonising lending.
  • Well over 200 international banks have signed the principles of responsible banking in the past two years, but, many of the biggest banks are not among them.
  • Of the top ten banks (by market capitalisation), only Citi, Commercial Bank of China (ICBC), Bank of China and Agricultural Bank of China are signatories.
  • Being a signatory to the PRBs is a limited commitment. Signatories have four years to comply with the principles. Even then, everything is voluntary and non-binding, so signatories are not penalised or even named and shamed for failing to live up to the principles.