Big Banks Adopt U.N.-backed Climate Change Lending Principles

Big Banks Adopt U.N.-backed Climate Change Lending Principles

A group of some of the world's biggest banks, with more than $47 trillion in combined assets, have adopted new U.N.-backed "responsible banking" principles. These are aimed at fighting climate change by allowing fewer loans for fossil fuel businesses.

“These principles mean banks have to consider the impact of their loans on society – not just on their portfolio,” Simone Dettling, banking team lead for the Geneva-based United Nations Environment Finance Initiative, said in an interview with Reuters.


Responsible banking

The banks in question make up a third of the global industry, meaning they have an enormous impact on investment worldwide. Deutsche Bank, Citigroup, and Barclays are among the 130 banks to join the new initiative.

Recently, financing for fossil fuels, including oil, gas, and coal has come under intense scrutiny. Climate scientists and activists are voicing growing concerns over a world economy that is overly reliant on fossil fuels that could lead to catastrophic irreversible climate change.

Increasing demands for sustainable practices have led to these new principles being outlined and put into effect.

New climate principles

The principles, drawn up by U.N. officials and the banks, require lenders to align their strategies with the 2015 Paris Agreement.

Lenders also have to set targets aimed at increasing “positive impacts” and reducing “negative impacts” on society and the environment and work with clients, and customers to encourage sustainability.

Finally, they have to be transparent and accountable throughout the whole process.

Is it enough?

As Reuters explains, some critics argue that banks aren't going far enough. These critics argue that banks should explicitly commit to phasing out financing for fossil fuel projects and businesses that drive deforestation throughout the world. What's more, it isn't obligatory for banks to join the initiative by law.

Others say this is at least a step in the right direction. Although the initiative is voluntary, Simone Dettling says lenders would feel obliged to participate due to the reputational risk of not taking part.

Only two of the world’s 10 biggest banks joined the coalition of 130 global financial firms in agreeing to align their business with international efforts to address climate change

— Bloomberg (@business) September 22, 2019

As Bloomberg points out, most of the world's very biggest banks are sitting out of the agreement.

While this might be a positive step, it has left many critics wanting.

Watch the video: Rebuilding the Global Economy: Discussion of the role of international finance and central banks (January 2022).