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Survey Finds Emerging-Mkt Banks Interested in Climate Change
Sep 17, 2009
By Emily McAteer
A new RiskMetrics Sustainability Solutions report, "Addressing Climate Risk: Financial Institutions in Emerging Markets," shows that while such institutions in the developing world are beginning to integrate climate change considerations into lending and other business decision-making, significantly more attention is needed.
The report, commissioned by the German development finance institution DEG and released Sept. 17, 2009, finds strong evidence that most Asian, Latin American, and other emerging-market banks are aware of the wide-ranging business impacts from climate change such as growing physical risks from increased drought and flooding. They also acknowledge corresponding investment opportunities associated with renewable energy, energy efficiency, and climate adaptation projects. Despite this awareness, however, the report shows that only a small number of these banks are financing clean energy programs, and fewer still are participating in carbon-trading projects.
With expectations high for the global climate change summit in Copenhagen at the end of this year, much attention is being paid to summit delegates from the developing world. Countries such as India and China already are among the highest-ranking greenhouse gas (GHG) emitters in the world, and non-Organization for Economic Co-ordination and Development (OECD) countries are expected to account for 90 percent of GHG emissions growth up to 2030. It is clear that serious commitments from developing countries to reduce their GHG emissions will be critical to an effective international climate change agreement.
Climate change mitigation efforts will create opportunities in emerging markets, particularly for the finance sector. In developing markets where new, low-carbon technologies often can leapfrog more carbon-intensive infrastructure, banks and other investors ultimately will be responsible for directing capital toward climate-friendly solutions.
Survey Evaluates Climate Change Governance Practices
RiskMetrics surveyed 154 banks, credit institutions and investment funds in Asia, Eastern Europe, Latin America, and other regions to evaluate the climate change governance practices of emerging market financial institutions. Sixty-four institutions provided full survey responses.
The survey results revealed that a growing number of emerging-market banks are responding to climate-related risks and opportunities, primarily by implementing specific policies, elevating the issue to board-level oversight, and boosting investments in clean energy and carbon-trading opportunities. But only a handful of the companies are integrating climate risk into their core business of lending by pricing carbon costs into their financing decisions.
Other report highlights include:
- Nearly one-third of the respondents, mostly in Eurasia and Latin America, are incorporating climate change considerations in their lending and investment decisions.
- Only two respondents consider GHG emissions specifically in their financing decisions and none of the institutions surveyed is measuring emissions resulting from those decisions.
- More than four-fifths of survey respondents have established a risk management system that addresses environmental, social, or other sustainability issues.
- Nearly two-thirds of respondents acknowledge that climate change will affect their business; 55 percent forecast both positive and negative climate change impacts.
- The majority of respondents (67 percent) have established an overall environmental or sustainability policy to guide business practices. Almost a third of these have policies that address climate change issues explicitly.
- Twenty-eight percent say their company's board is directly involved with climate change initiatives.
The study identifies several leading institutions, such as Rabo Equity Advisors, Grupo Finterra, YES Bank, Axxess Capital, Center-invest Bank, Frontier Markets Fund Managers, Global Environment Fund, and DLJ South American Partners, which all are beginning to move beyond general environmental policies toward integrating climate change issues into core business practice. These leaders are also seeking opportunities to finance carbon offset projects and ways to invest in burgeoning renewable energy markets.
The full report, which is being co-launched with investor coalition Ceres, is publicly available at www.riskmetrics.com.