Climate policy is for governments, not C-suites, so the following should not be any kind of dilemma.
The deep divide in how major economies are approaching the energy transition risks forcing banks to choose between growth and climate finance, according to Barclays Plc.
“A complex and fragmented policy environment” characterized by “increasingly divergent approaches” among governments is making the energy transition more expensive and slowing the pace of decarbonization, Barclays Plc said in its annual report.
The upshot is that “financial institutions may need to choose between financing growth and maintaining the pace of reducing financed emissions,” it said.
Not really. Unless stipulated by law or regulation, a bank has no obligation to consider whether it should be “financing emissions” or, indeed, “growth.” Its obligation is solely to consider the economic return from its business activities to its owners, its shareholders.
Of course, part of making that assessment will include the bank weighing the impact of climate change on its loan portfolio (given the relatively short term of much lending, it’s unlikely to be high). It will also have to consider the possible effect of climate-related legislation and, regrettably, lawfare. That may be higher.
Barclays comments that real-world climate and nature-related risks are “becoming clearer for us and our clients.” If that’s so then both they and their clients will probably have priced it in. If not, they should. Barclays claims to believe that the window within the Paris target to confine global warming to 1.5C above pre-industrial levels “is narrowing.” I can only hope that the bank is being polite. There is next to no chance that that threshold will not be crossed.
Bloomberg:
That brings with it a cascading array of problems, not least that 1.5C is the “pathway that underpins current corporate and financial planning.”
If that really is the case, heads should roll. The idea that 1.5 degrees Celsius was credible was always far-fetched. However, saying so publicly has been tricky in the business and financial worlds. There was ESG to sell, activists were on the warpath, and unelected mandarins such as Mark Carney were on the prowl. Perhaps that is changing. We’ll see.
But wait, wait, what was that comment about “nature-related risk”? Well, “nature” (sometimes spelled with a capital “n”) has obviously been part of the green activist portfolio for a while but is now being harnessed to increasingly ambitious ends. It is worth keeping an eye on how that evolves. Faced with inconvenient truths and inconvenient voters, the climate “crisis” is not delivering as much of the political and policy return as those who proclaim it have been hoping for. So the many still harvesting that panic are hoping that “nature” will, like Tolkien’s Ents, come to the rescue.
Check out, for example, this document prepared by the Nature-Related Risk Working Group for the Climate Financial Risk Forum:
The climate-nature nexus recognises that nature and climate are so interlinked and material to each other that they must be considered together. Climate improvements that overlook nature considerations may fail to prevent or even cause damage to the natural world, create reinforcing feedback loops and ultimately lead to increased harm to the planet, while also failing to capitalise on nature based decarbonisation opportunities.
Etc., etc.
The Climate Financial Risk Forum? It’s British.
From its website:
Established in 2019, the Climate Financial Risk Forum (CFRF) brings together senior financial sector representatives to share their experiences in managing climate-related risks and opportunities.
Convened by the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA), the CFRF builds capacity and shares best practice across financial regulators and industry to advance the sector’s responses to the financial risks from climate change.
2019, eh? Another legacy of the Tory years.
Back to Barclays. The bank also commented that “higher decarbonization costs, a lack of clear and consistent long-term demand and persistent structural barriers often mean the economics of transition are not yet sufficiently compelling.”
As imagined by the central planners of Paris, they never were.