What are Global Systemically Important Banks doing about climate?
In this paper, Beltran et al. review the plans and the progress of Global Systemically Important Banks (GSIBs) toward achieving their publicly announced “climate action plans.” The authors use disclosure data from G-SIBs’ annual climate disclosures as of December 2021, except for the sustainable finance commitments which are as of May 2022 as well as data on G-SIBs’ financing activities from Bloomberg
and other sources. Some of their findings include:
- G-SIBs are adapting their governance structures to address climate change issues. For example, they have identified climate risks and are beginning to measure them while some of them are beginning to measure scope 3 emissions.
- G-SIBs are increasing their sustainable finance commitments but a financing gap remains. In addition, they have signaled financing restrictions to certain activities that are associated with high emissions but to date, most of these financing restrictions appear symbolic, seemingly to avoid reputational damage.
What are Large Global Banks Doing About Climate Change?
Authors: Daniel O. Beltran, Hannah Bensen, Amy Kvien, Erin McDevitt, Monica V. Sanz, Pinar Uysal
From: Federal Reserve Board
What are the European Banks doing about climate?
Giannetti et al. focus on whether the European banks’ “climate action plans” are consistent with the types of lending decisions they are making. Much like Beltran et al. above, they look at the banks’ environmental disclosures but use machine learning to identify the extent to which banks claim to embrace environmental sustainability goals in their disclosures. In particular, they retrieve investor reports for the 2014-2020 period from banks’ websites and data loan-level data from AnaCredit (AC), a credit register launched by the European System of Central Banks in 2018 that offers confidential information on commercial loans outstanding. Their findings provide a more granular look not only at the type of borrower banks with high environmental disclosures extent credit to, but also provide justification for these decisions. Giannetti et al. find:
- European banks with extensive environmental disclosures lend more to brown companies than to green. Their further analysis to explore the possibility that these brown borrowers have transition plans toward green technologies, by using Science Based Target Initiative (SBTi) data, shows that this is not the case.
- Banks with extensive environmental disclosures tend to extend more loans to brown borrowers with which they have stronger relationships, and are less likely to start new relationships with brown borrowers.
- Interestingly, Giannetti et al. find that banks with extensive environmental disclosures continue lending to financially unhealthy brown borrowers who have typically fewer financing alternatives. “Thus, terminating the relationships would force banks to not only realize credit losses but also to explain their exposures to brown industries, suggesting that relationships with zombie firms hinder banks’ efforts to reduce their environmental impact.”
Glossy Green’ Banks: The Disconnect Between Environmental Disclosures and Lending Activities
Authors: Mariassunta Giannetti, Martina Jasova, Maria Loumioti, Caterina Mendicino
From: Stockholm School of Economics, Columbia University, University of Texas at Dallas, European Central Bank
