Britain uses banks to fight climate change

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Proponents took to the streets of Glasgow last month to pressure banks and other financial institutions at the 26th United Nations climate summit to be more responsible stewards of the climate. But a bank just 50 miles east of the Scottish city already shows what that might look like.

NatWest, formerly the Royal Bank of Scotland, has made the unlikely transformation from a substantial oil and gas industry financier to a green finance leader by cutting its exposure to fossil fuels and pledging £100bn or $133bn towards sustainable energy projects in the next four years.

The bank, headquartered in Edinburgh, could serve as an example of the massive shift needed for the UK’s banking and investment industry to become, in the words of the government, “the world’s first net zero-aligned financial center.” ” to become.

Since Brexit, the UK’s financial sector has lost some of its luster as London can no longer be used as a hub for European business. Determined to maintain the country’s eminence, The Treasury is exploring other ways to attract investors, including easing rules on publicly traded companies to attract founder-led tech start-ups and supporting financial technology companies. But green financing can also be an answer.

NatWest’s climate-friendly transformation has even earned the tentative praise of some of its protesters.

Johan Frijns, co-founder of BankTrack, a Dutch organization that pressures banks to give up financing fossil fuel projects, said NatWest could set a new benchmark for transforming a large bank for a low-carbon economy.

“We almost desperately want to see NatWest as a beacon of hope, as a bank that shows that it can change,” says Frijns. “And it comes from very far. It was proud to be the oil and gas bank.”

The transition at NatWest has been aided by its diminished global stature. For a brief period before the 2008 financial crisis, it was the largest bank in the world by assets. But when it suffered huge losses as the global credit crunch hit hard, it was rescued by the British government and held back its ambitions. Now, due to the smaller, domestic focus, almost half of the loan portfolio consists of mortgages.

But in the past decade, NatWest has become more diligent — first slowly, then fast — in its climate-related goals. In 2012, it set aside £200 million for companies to carry out energy efficiency projects. In subsequent years, it helped fund more renewable energy projects, including wind farms. In 2017, it reported that it was not directly funding any new coal mining or coal power projects. The following year, NatWest said it would spend £10 billion on sustainable and climate finance over the next two years.

But the biggest changes have come under the leadership of Alison Rose, who took over as chief executive-led bank in late 2019, with a focus on “helping to tackle the climate challenge.”

In October, the bank announced it would spend £100 billion on financing for green and sustainable initiatives by the end of 2025. of this year a transition plan geared to limiting global warming to 1.5 degrees Celsius above pre-industrial levels (the UN Paris Agreement). The bank has also committed to a “complete phase-out” of investments related to coal by early 2030, the same year it plans to halve the carbon emissions of all its financing before reaching net zero by 2050.

The bank’s transformation is not complete: At the end of September, NatWest’s exposure to major oil and gas companies, mainly through loans, amounted to £1 billion and £600 million to companies with more than 15 percent of activity related to coal. But the priorities are following the path set by the government, which has set the country a legally binding target to cut carbon emissions by more than three-quarters by 2035 from 1990 levels, and net zero emissions by 2050. to achieve greenhouse gases. Legislators are working out how to achieve these goals.

Rishi Sunak, who as the Chancellor of the Exchequer is Britain’s top finance officer, has presented a plan that will initially require and eventually require financial institutions, including asset managers and pension funds, and listed companies to publish how they operate. and investments to help the country meet its net-zero targets. These transition plans are in addition to the existing requirements to publish financial information about climate risks for their operations and investments.

“It’s a very positive indicator that the UK recognizes that it needs to consider emissions from its financial sector,” said Alison Kirsch of Rainforest Action Network, the lead author of his annual report on bank financing of fossil fuels. “It’s something that hasn’t happened in the US”

But, she added, the transition plans are not yet mandatory, and the UK government has said it would let the market decide whether the plans were adequate or credible. “We haven’t seen the market have good judgment on a lot of things in terms of climate,” she said.

There are other ways Britain could struggle to achieve its goals. Before the transition plans become mandatory, the government will set up a task force to determine what a good plan looks like. It is not expected to report for another year, although some international groups have already issued guidance on transition plans, delaying mandatory reporting. And the government has explicitly stated that these transition plans are not intended to eliminate investments in CO2-intensive activities.

“The rules are all about disclosure – and disclosure is very helpful – but it won’t solve anything by itself,” said Chris Stark, the chief executive of the Committee on Climate Change, a watchdog funded by the UK government to advise lawmakers. about environmental policy.

“But I think it’s an important first step to take more action next,” added Mr Stark, whose group recommended Britain zero a financial center.

Britain is one of many countries trying to achieve climate goals through financial regulation. But proponents say more needs to be done to be a leader of this group, which includes France.

“If you’re really serious about being a zero-focus financial center, you need to move to mandatory reporting very quickly,” said Bethan Livesey of ShareAction, a UK-based charity. “And you have to have an accountability mechanism there.”

The transition plans should also show investment in renewable energy and green projects, says Chris Dodwell of Impax Asset Management, a former climate negotiator for the UK government. To achieve the UK’s climate targets, investments in, for example, electric vehicles and alternatives to gas boilers in homes will need to increase fivefold by 2030, according to the Committee on Climate Change.

As the financial industry tries to rewire itself to achieve these goals, NatWest’s reputation as a leader is being tested. It’s still a month away from the deadline given by the major oil and gas companies to draft a credible transition plan — or else get rid of the bank’s lending and insurance services. Lawyers want to know that the threat of running away is real.

The bank has already told some companies it won’t be able to fund them in the future, based on the information they’ve provided, said James Close, a former director of climate change at the World Bank who joined NatWest this year to help the climate. lead. change strategy. He said these companies would come back to the bank to verify that the information was correct.

“It’s a conversation — it’s not some sort of one-time decision,” Mr. Close said. “And then we will have to evaluate.”

While NatWest’s dealings with oil and gas companies are smaller than some of the other major UK banks, BankTrack’s Mr Frijns has no intention of lifting the pressure.

“I promise that if we see basically business as usual for NatWest by the end of this year, they will be the target of campaigns next year, just like any other bank,” he said.

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