Financing Climate Change

“Climate-related risks are part of financial risks. For financial institutions and supervisors as well, it is not a nice-to-have. It is not part of corporate social responsibility. It is a must-have and it is part of risk management,” said France’s central bank governor. The effects of climate change are already being felt. According to the Swiss Re Institute, climate-related events have risen around 93% from 1985 to 2015. Increased temperatures, drought, water stress, and weather have disrupted livelihoods in many ways, especially for financial institutions.

FINANCIAL MARKET AND COMBATING THE CLIMATE CHANGE

For financial institutions, climate change has been impacting through two main channels—via damaged infrastructure and land, which are “Physical Risks,” and “Transition Risks,” or societal and economic shifts toward a more climate-friendly future. Besides, banks, as the main factor in controlling the money market and assets, making loans to corporations, underwriting corporate stock and bond offerings, and managing investment portfolios, are in a position of influence that will play a vital role in reinforcing society to compete for climate fight.

DBS BANK’S POLICY

DBS, a major Singaporean bank, declared a policy related to climate change issues focusing on its client’s business. This includes achieving net zero by 2022 and working toward its thermal coal commitment by 2039. The latter is achievable by ceasing to onboard new customers with more than 25% of revenue from thermal coal; for customers who derive more than 50% from thermal coal, their financing is stopped altogether. Other policies include leveraging DBS’ sustainable and transition finance framework and scaling positive ESG impact to clarify their path to net zero carbon emissions.

GAP OF ACTUAL IMPLEMENTATION RATE

Even though financial institutions have ambitions to combat climate change, room for improving the actual results is still available. In the report of CDP-Europe and Oliver Wyman, there is a $4 trillion mismatch between the available pool of money and the corporations in Europe that currently qualify as Paris-aligned.

All in all, banks are in a position to influence corporate behaviors. Nevertheless, financial institutions need help pushing humankind to net-zero carbon emissions to overcome the climate challenge. They still need other broader incentive systems driving global business activity that need to be realigned in different ways. International agreements on the proper accounting practices for carbon or companies that step up their standards to achieve the goals will enforce the bank’s policy implementation in this regard.

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