'Climate Principles' Refocuses Banks on Sustainable Behavior

One year on from the financial meltdown and a few days out from an international climate summit where financing for technology and adaptation will be major issues, the headlines are still full of news about bank bailouts, questionable banking practices and tight lending.

Even if the Copenhagen climate talks end with an eleventh-hour agreement on emissions, there's still the banking problem.

The Climate Group, an international coalition of governments and businesses, has been working for the past year on solutions to both in the form of the Climate Principles, a set of voluntary standards that binds participating banks to sustainable business practices, sustainable lending practices and environmental responsibility.

A year into the project, five major international banks have signed on to the Climate Principles: the world’s two largest reinsurers, Munich Re and Swiss Re; its fifth- and sixth-largest banks, HSBC and Credit Agricole; and Standard Chartered, one of the largest banks in Britain.

The five are setting an example for the industry as they pioneer new products and services, said Emily Farnworth, a senior finance advisor of the Climate Group. More than that, she said, they are helping to firm up the now loose conceptualization of how banks can and should respond to climate change.

“Unless you’re a financial sector organization, you’re really in the weeds of understanding exactly what this all means," Farnworth told SolveClimate. "It’s really difficult to put [climate change] into tangible terms.

"One of the things that the review will do is provide examples of the way banks have developed a new service, what kind of process that they have to engage with their clients, how they’ve been working with research institutions on specific challenges around climate change.”

The products and services developed for climate change adaptation so far range from climate insurance policies to clean energy investment services.

Munich Re, for example, is working with Asian insurers to offer natural disaster insurance in areas at high risk for flooding. The reinsurer is piloting a system among its employees in which it provides interest-free loans to finance the purchase of electric vehicles and other low-carbon lifestyle solutions.

Swiss Re is working on rainfall indexed climate insurance to bolster farmers’ incomes in countries at risk of extreme weather, piloting a project with the World Bank in Malawi.

Standard Chartered entered into a risk sharing agreement with the Asian Development Bank and Johnson Controls, an energy management firm, to retrofit buildings in China for energy efficiency.

Now in its one-year review of the project (an official progress report is expected before the Davos Summit in late January), The Climate Group is sussing out the obstacles its banks are facing as they implement the Climate Principles. PriceWaterhouseCoopers is conducting the independent evaluation and has designed the indicators, which are confidential until the report is released.

Farnworth is unwilling to make many predictions about the findings, but she will admit a few.