Can bankers fix their climate problem from the inside?

Big banks have a climate change problem. Although most have long-term decarbonization targets, very few have been willing to restrict their business with high-carbon clients. Globally, banks have lent $4.6 trillion to the fossil fuel industry since 2016.

But there are bankers trying to steer their employers into a lower-carbon future.

One of them is Carlotta Giacché. As a project finance officer for NORD/LB bank in London, her job is to evaluate proposals for loans to infrastructure projects, including the construction of schools, hospitals, and data centers. Within the last year, she had started asking potential clients to share data related to the proposals’ environmental impacts, and was able to use those requests to make clients measure and consider impacts that they previously might have missed.

It felt like progress, but there was a problem. Each of the NORD/LB’s many different lending offices had its own approach to requesting and evaluating environmental, social, and governance (ESG) data from clients, creating the risk of inconsistencies, redundancies, and blind spots. So Giacché pitched her bosses on a solution: to lead a volunteer ESG squad with representatives from across the bank who could train their colleagues on ESG issues, troubleshoot tricky cases, and develop standard protocols.

“I don’t think that people realize quite how screwed we are, and if you’re not engaged with climate and ESG and discussing them on a daily basis, it’s easy to look away,” she says.

After the squad formed in May, Giacché realized that many of her colleagues didn’t want to look away. Demand is already high for the squad’s services, she says: “We get a lot of people contacting us.”

A bootcamp for socially conscious bankers

Giacché was recently one of 23 employees from different banks in the US, Europe, India, and Africa to participate in the first session of a six-month crash course on climate for bankers, organized by the UK nonprofit Finance Innovation Lab (FIL). The program, which wrapped up in March, aimed to nurture a corps of climate advocates within the middle ranks of mainstream banks. The participating fellows included officials from leading fossil fuel financiers like Citi, Barclays, and HSBC, who together learned about climate risk to the financial sector and workshopped ways to accelerate and improve how the banks manage it.

“There are a lot of people pushing on banks from the outside to divest from fossil fuels and invest in the energy transition, including regulators, activists, and investors,” says Lydia Hascott, an expert on organizational strategy at FIL who led the program. “But there aren’t so many people looking at employees on the inside. Ultimately it’s they who have to set a net-zero target and follow through on it.”

There are indications that at some firms, this will be an uphill battle

The public got a rare, unfiltered glimpse into the short-term thinking and misplaced priorities of some bank leaders in May, when a top HSBC executive said that “climate change is not a financial risk that we need to worry about” because it will happen beyond the duration of a typical loan. The executive was suspended, though his perspective on climate risk is not uncommon on Wall Street.

The antidote, Hascott says, is to change corporate culture by propagating climate action through the ranks of bank staff, so that it’s not a mysterious mandate from the C-suite or a matter of mere marketing, but something that everyone in the organization feels equipped and empowered to work on and profit from.

In interviews, six of the FIL program’s alumni described a combination of college class, freewheeling brainstorm, and group therapy session, in which the most common hurdle, like the one Giacché faced, is a sense of isolation from peers that keeps nascent institutional knowledge about how to use a climate lens to find impactful business opportunities hidden in dark corners.

“The primary thing bankers in the program want outsiders to know is: ‘We exist. We’re not all the money-hungry, bonus-chasing bankers who want to increase profits at all costs,’” Hascott says.

Training the skeptics

Clare Martin at NatWest was already broadcasting that message when she started the FIL program. Since April 2021, she’s been in charge of designing an in-house training curriculum on climate. It takes staff through basic climate science, how that translates to risk for a bank, how to measure and analyze ESG-related data, and how the bank’s top-level climate goal — to cut financed emissions in half by 2030 — filters down to different departments. In April 2022, she roped in a group of sustainable business professors from the University of Edinburgh, with a goal for them to train 16,000 NatWest employees by 2025.

When the professors first showed up, she says, “they really noticed the skeptics and the disbelief that banks would really do something” about climate change. But a lot of minds changed quickly with even an introductory level of training, she says.

One of Martin’s main projects now is to identify who else in the bank should take the training, essentially creating a list of climate-related roles. “It’s about boosting peoples’ confidence to ask the right questions and take action,” she says.

Lucy Ellis-Keeler, an early-career employee at Citi who works on regulatory compliance, says the rise of climate as a hot topic within banks has opened opportunities for younger staff to talk directly to senior managers who are keen for fresh ideas.

“Banks are becoming a lot more flat. There’s definitely the space to discuss what you’re doing on climate,” she says. “And there’s a willingness to collaborate, because it’s not something we can solve as individuals.”

“Greenwashing risk is very much on the radar”

One of the main benefits of the FIL program, according to several participants, was the reassurance that no bank has the secret formula to climate ambition figured out, and that most are still at an early phase of calculating the risks and opportunities presented by physical climate impacts and the clean energy transition.

“Everything is new,” says Sophie Dupré-Echeverria, chief risk officer for Gulf International Bank’s asset management wing. “People are becoming more aware of climate risk, but there are still lots of concerns about what we can really predict and how good our estimations are.”

The chronic deficit of reliable climate data from clients, limitations in what banks can do to pressure their highest-carbon clients short of cutting ties altogether (and risk losing major business in the short term), and the inherent uncertainty in climate forecasting have led many banks to be cautious, perhaps too much so, in setting bold climate goals, lest they fall short.

“Greenwashing risk is very much on the radar of institutions like ours,” Dupré-Echeverria says. “We need to be able to back this up.”

Awaiting new rules on corporate climate disclosures

Banks should get a leg up on the data issue once US regulators finalize new rules for corporate climate disclosures. Some economists argue that regulators should require banks to hold more cash in reserve any time they make a high-carbon loan, which could incentivize individual bankers to favor low-carbon investments. Banks also could adopt internal carbon pricing for a similar result.

In the meantime, culture change is slowly filtering the ranks. Dupré-Echeverria says she recently invited a group of climate activists to meet with her bank’s asset managers to discuss “say-on-climate” proxy votes. The activists argued that asset managers should support all corporate climate plans that come to vote, she says, but the asset managers wanted to set a higher bar. “We don’t want to put our name on a climate transition that we don’t really believe in,” she explains.

The propagation of that attitude at more banks could be one of the most important sea changes needed to decarbonize the global economy.

“Four years ago I wouldn’t have thought that banking had any solutions for climate change,” says FIL program participant Steve Hamilton, who leads graphic design at Ponce Bank in New York and is new to the industry. “Now as an insider I think banking might be one of the greatest levers for change.”

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