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The time to green finance

With the Financial Services Climate Change Questionnaire 2020, CDP asks for disclosures from financial institutions on the impacts they finance in the wider
economy. The disclosures allow for a baseline assessment of climate-related risks, opportunities and impacts in financing portfolios; and of how banks, asset owners, asset managers and insurance companies are preparing for the net zero carbon transition.

Key points
  1. Almost all financial institutions’ climate impact and risk is driven by the activities they finance in the wider economy, yet the data suggests that this is not yet where the focus is for a large number of institutions
  2. On top of providing green finance, the finance sector must become green. While there are signs of financial institutions committing to align their portfolios with a net zero carbon world, much work still needs to be done.
  3. Financial institutions definitely see opportunities for returns on financing the transition to a low carbon, deforestation free, water secure future – 76% see opportunities in offering sustainable finance products and services.
  4. Disclosures suggest financial institutions are underestimating their climate-related risks.
  5. Financial institutions can create a feedback loop to de-carbonize and enhance resilience of the economy as a whole; engagement with portfolio companies is a key part of this. It is more common for banks to indicate they are engaging with their portfolios on climate-related issues, compared to other industry activities.
  6. Most financial institutions now have some board-level oversight of climate-related issues, however there are signs boards could sharpen their focus on issues that really matter.
  7. When it comes to incorporating climate-related considerations, insurance companies are currently more focused on their investments than the underwriting they provide.
  8. Environmental impact of financing portfolios goes beyond climate change, but currently the issues of deforestation and water security are assessed by fewer institutions in making financial decisions, compared to climate change.