Two asset management firms – Sarasin & Partners and Generation Investment Management – have been recognised for their progress in acting on their climate commitments in the inaugural Sustainable Finance Report Card published by the Centre for Climate Finance and Investment at Imperial College Business School.
In partnership with the Carbon Tracker initiative, the report – Sustainable Finance Report Card: Recognising Ambition “Who’s Walking The Net Zero Path?” – shows a growing number of financial institutions worldwide are having a positive impact on tackling catastrophic climate change in line with scientific targets.
The report scored financial companies according to whether they had explicit policies on eradicating financing for fossil fuel expansion or investment from their operations, as well as assessing the extent to which they had accomplished their aims.
Out of the 50 institutions assessed, nine were given a gold award for their efforts – ABP, Akademiker Pension, Danske Bank, Generation IM, Handelsbanken, Ircantec, La Banque Postal, New York City Retirement Systems and Sarasin & Partners.
“The landmark Paris Agreement has prompted financial market participants to rethink climate risk and opportunities. Financial institutions increasingly recognise their pivotal role in facilitating the comprehensive transition to a net-zero economy,” said Dr Iva Koci, research associate for the centre for climate finance and investment, and one of the lead authors of the report.
“We see these awards as an assessment of financial institutions’ resilience and leadership of their management at a time of growing disruption of the incumbent fossil fuel system.”
Generation IM was considered “a strong example of an investor implementing a successful business strategy focused on investing in new energy systems” rather than the incumbent fossil fuel system. They do not invest in fossil fuel companies at all, as part of their strict ESG investment mandate.
Meanwhile, Sarasin & Partners applies a very strict fossil fuel exclusion policy to its investments, excluding companies that receive 5% of their revenues from the extraction and production of oil and gas, 5% of returns from refining oil and gas, and those who derive 5% of revenues from the extraction of thermal coal.
The firm has also made a commitment to stop funding new fossil fuel extraction or fossil powered energy generation projects, with an exception for companies that can verify their carbon neutrality – for example, through carbon capture and storage – or an engagement target with clear time-bound 1.5°C-alignment objectives.
Overall, the report provides a guide to financial institutions still engaged in fossil fuel-based activities, and how they can clean up their practices as well as having a wider positive influence upon financial services professionals, investors, regulators and others.
Both the scorecard and report are set to be repeated regularly, aiming to provide other financial institutions with the impetus to adapt their own practices.
New York City comptroller, Brad Lander, said financial institutions have an important role to play in the transition to clean energy. “Growing investments in climate solutions have dramatically reduced the cost of renewable energy. Yet many banks and investors continue to pour money into fossil fuel companies, resulting in increased emissions. We must use all our tools as investors and shareholders to combat the climate crisis.”
At a conference announcing the launch of the report, Samu Slotte, global head of sustainable finance at Danske Bank said he was pleased of the recognition, but said he remained humble.
“As it says in the report, by no means is our policy complete, and we still have parts of our value chain that we’ll need to address where transition is difficult to measure. There’s two considerations we have, one driven by climate and our climate commitments, and the second is on risk management.
“On that risk management, some banks overlook refinancing risk. So, let’s say we have five years of lending in a syndicate alongside other banks in a fossil fuel company. At the end of that five years, we have to step up our commitment or a new bank needs to join, and if there aren’t any new banks willing to join, then we’d be locked into that investment for much longer. So, that’s a refinancing risk people should be aware of.”