Time for banks to 'detox'

ABBL Published 10.01.2020

Two kilos! That’s the average weight gain over the Christmas break. It’s impossible to resist a toast or a dessert when in good company, even for the most virtuous of calorie counters. That’s why so many of us try to detox in January, to get back into shape and shed those extra kilos.

Banks need to detox too

In the last few months of 2019, the banking sector made a series of commitments to a very ambitious ‘carbon detox’ strategy. A whole host of major banks announced a timeframe for a complete coal exit and increased financing targets for renewable energies by 2030.

These new policies will have a huge impact on banks’ lending priorities for the future if they are to meet the requirements of the Paris climate agreement: resources released and commercial efforts will need to be redirected to encourage customers to convert to a lower carbon economic model (renewable energy, building renovation, clean technology, battery storage, smart energy systems etc.).  If customers do not change their behaviour, banks risk not meeting the targets they themselves have agreed.

Detox side-effects

However, a certain intellectual honesty about the subsequent risk of assets based on coal, oil and gas becoming ‘stranded assets’ is required; that is, environmentally unsustainable assets that would need to be written-down or -off or converted to liabilities. Stranded assets could negatively impact value across the global economy.

Investors, companies, banks, regulators and policy makers must all increase their understanding of how the transition might happen, in order to proactively develop strategies to manage risks and seize potential opportunities. In a responsible transition path towards a sustainable economy, activities at corporate and asset level would need to be implemented to, at the very least, reduce the unwanted consequences of economic downsides, and major players should be held accountable for their own legacies.

Long-term change

Everyone knows that a January detox is only a short-term solution, and that real change requires a long-term shift in habits and lifestyle. The subject of a healthy transition to a lower carbon economy has been on the agenda for a while now, and will continue to preoccupy us for the months to come.

Fabio Mandorino, Adviser, Sustainable Finance, ABBL

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