Britain uses banks to fight climate change

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Activists took to the streets of Glasgow last month, pressuring banks and other financial institutions at the 26th United Nations climate summit to be more responsible climate stewards. But a bank based just 80 kilometers east of the Scottish city is already showing what that could look like.

NatWest, formerly the Royal Bank of Scotland, has made the unlikely transformation from a substantial financier in the oil and gas industry to a leader in green finance, reducing its exposure to fossil fuels and pledging to funnel £ 100bn , or $ 133 billion, in sustainable development. -energy projects in the next four years.

The Edinburgh-headquartered bank could serve as an example of the huge change needed for Britain’s banking and investment sector to become, in the government’s words, “the world’s first net zero financial center. “.

Since Brexit, the UK financial industry has lost some of its luster, as London can no longer be used as a hub for European businesses. The Treasury, determined to maintain the country’s eminence, is exploring other ways to attract investors, including relaxing company listing rules to attract tech start-ups run by founders. and supporting financial technology companies. But green finance could also be an answer.

NatWest’s climate-friendly transformation has even earned cautious praise from some of its protesters.

Johan Frijns, co-founder of BankTrack, a Dutch organization that lobbies banks to stop funding fossil fuel projects, said NatWest could set a new benchmark on how to transform a big bank for a low carbon economy.

“We almost desperately want to see NatWest as a beacon of hope, as a bank that shows it can change,” Mr. Frijns said. “And it comes a long way. She was proud to be the oil and gas bank.

The transition to NatWest was made easier by its diminished global stature. For a short time before the 2008 financial crisis, it was the world’s largest bank, in terms of assets. But then, facing huge losses as the global credit crunch hit hard, he was bailed out by the UK government and limited his ambitions. Today, reflecting its smaller concentration in the domestic market, almost half of its loan portfolio is made up of mortgages.

But over the past decade, NatWest has – slowly at first, then rapidly – grown more zealous in its climate-related goals. In 2012, he set aside £ 200million for companies to undertake energy efficiency projects. In the following years, he helped finance more renewable energy projects, including wind farms. In 2017, he said he had not directly funded any new coal mining or coal-fired power generation projects. The following year, NatWest said it would spend £ 10bn in sustainable and climate finance over the next two years.

But the biggest changes came under the leadership of Alison Rose, who took over as Managing Director at the end of 2019. In addition to changing the bank’s name and moving it away from its crisis-ridden past, Ms. Rose said she wanted to lead a “goal-led bank”, with a focus on “helping tackle the climate challenge”.

In October, the bank announced it would spend £ 100bn to fund green and sustainable initiatives by the end of 2025. It said it would stop lending and subscribing to major oil producers and of gas if they hadn’t launched, by the end. this year, a transition plan aligned with limiting global warming to 1.5 degrees Celsius above pre-industrial levels (the goal of the UN Paris Agreement). The bank is also committed to a “complete phase-out” of coal-related investments by early 2030, the same year it intends to halve the carbon emissions of all of its finance before reaching net zero. in 2050.

The bank’s transformation is not complete: at the end of September, NatWest’s exposure to large oil and gas companies, mostly in the form of loans, was £ 1 billion and £ 600 million to companies where more than 15% of the activity is linked to coal. . But its priorities are following the path set by the government, which has set a legally binding target for the country to cut carbon emissions by more than three-quarters by 2035 from 1990 levels, and achieve net zero emissions. greenhouse gases by 2050. Lawmakers are figuring out how to meet these targets.

Rishi Sunak, who as Chancellor of the Exchequer is Britain’s top financial official, presented a plan that initially calls for, and ultimately forces, financial institutions, including asset managers and funds to pension, and publicly traded companies to publish how they will tailor their operations and investments to help the country meet its net zero goals. These transition plans would be in addition to existing requirements for disclosing financial information on climate risks for their business operations and investments.

“It’s a really positive indicator that the UK recognizes that it needs to take into account the emissions associated with its financial sector,” said Alison Kirsch of Rainforest Action Network, lead author of its annual finance report. of fossil fuels by the banks. “This is something that did not happen in the United States”

But, she added, the transition plans are not yet mandatory and the UK government has said it will let the market decide whether the plans are adequate or credible. “We haven’t seen the market be a good judge on a lot of things about the climate,” she said.

There are other ways that Britain might struggle to meet its goals. Before transition plans become mandatory, the government sets up a task force to determine what a good plan looks like. It is not expected to report for another year, although some international groups have already provided advice on transition plans, delaying mandatory reporting. And the government has explicitly stated that these transition plans are not designed to ban investments in carbon-intensive activities.

“The rules are only about disclosure – and disclosure is very useful – but it won’t solve anything on its own,” said Chris Stark, chief executive of the Climate Change Committee, a watchdog body funded by the UK government to advise lawmakers. on environmental policies.

“But I think this is an important first step to then have more action,” added Mr Stark, whose group recommended Britain commit to being a net-aligned financial center. zero.

Britain is one of many countries trying to meet climate goals using financial regulations. But supporters say that to be a leader of this group, which also includes France, more needs to be done.

“If you really want to be a net zero aligned financial center, then you have to move to mandatory reporting very quickly,” said Bethan Livesey of ShareAction, a UK charity. “And you have to have an accountability mechanism in there.”

Transition plans must also show investments in sustainable and green energy projects, said Chris Dodwell of Impax Asset Management, a former climate negotiator for the UK government. Achieving Britain’s climate goals will require a quintuple investment by 2030 in, for example, electric vehicles and alternatives to gas boilers in homes, according to the Climate Change Committee.

As the financial industry tries to reconnect to achieve these goals, NatWest’s reputation as a leader faces an imminent test. He’s a month away from the deadline he gave big oil and gas companies to deliver a credible transition plan – or lose the bank’s loan and underwriting services. Defenders want to know the threat to walk away is real.

The bank has already told some companies that it cannot fund them in the future, based on the information they provided, said James Close, former director of climate change at the World Bank who joined NatWest. this year to help direct its climate. change strategy. He said these companies were coming back to the bank to verify the information was correct.

“It’s a conversation – it’s not some sort of one-off decision,” Close said. “And then we’ll have to assess. “

While NatWest’s dealings with oil and gas companies are smaller than some of the other big UK banks, BankTrack’s Mr Frijns has no plans to lift the pressure.

“I promise that if at the end of this year we basically see business as usual for NatWest, then they will be the target of campaigning next year like any other bank,” he said. declared.


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