This year a handful of major banks have published so-called transition plans. Scores of other major lenders are expected to follow suit before the year is out. — Bloomberg
LONDON: When it comes to climate action, banks have said a lot about the “what” (they’ll cut net emissions to zero), the “why” (it’s good for the planet, and for business) and even the “when” (they’ll hit net-zero no later than 2050).
But very few words have been spoken about the “how,” an omission that hasn’t gone unnoticed by investors on the lookout for greenwashing.
Until now that is.
This year a handful of major banks, including Citigroup Inc, Spain’s Banco Bilbao Vizcaya Argentaria SA (BBVA) and NatWest Group Plc in the United Kingdom, have published so-called transition plans.
Scores of other major lenders are expected to follow suit before the year is out.
In fact, Tony Rooke, head of transition finance at the world’s biggest climate finance coalition, the Glasgow Financial Alliance for Net-Zero (GFANZ), said he expects 2023 to be “the year of the transition plan.”
Rather than adding more verbiage to an ever-expanding suite of sustainability disclosures, transition plans are supposed to explain in detail how 30-year goals will be achieved.
They are meant to provide hard data for investors assessing whether a company can actually keep its word.
For Val Smith, Citigroup’s chief sustainability officer, the transition plan is the next step for net-zero-targeting banks.
Citi said in a report last month that it’s updating its initial transition plans while also assessing the preparedness of its high-carbon clients for a low-carbon world.
“We are just now at the point where banks’ transition plans are being fleshed out,” New York-based Smith said.
“You can see how this is building: First you set a net-zero commitment, then you build up governance structures and develop an initial set of metrics and targets around loan portfolio decarbonisation, and then you make a plan for how you will implement, or operationalise, those commitments.”
Meanwhile, BBVA published the initial version of its climate transition plan earlier this month. The bank says the document demonstrates its “strategy with respect to the fight against climate change and what measures are being taken.”
The Spanish lender said it is monitoring clients’ decarbonisation strategies and incorporating them into its risk-assessment tools.
“To define a complete transition plan is a learning process. It will take a few years to complete. But it is critical to start as soon as possible if you have set targets,” said Antoni Ballabriga, BBVA’s global head of responsible business.
“Transition plans together with disclosure year after year about performance against targets will be fundamental to mitigate greenwashing risks.”
Ben Caldecott is an Oxford University sustainable finance professor and co-head of the secretariat of the UK’s Transition Plan Taskforce, or TPT, a government-backed initiative to “develop the gold standard for private sector climate transition plans.”
He said transition plans are valuable because they will expose laggards and raise standards.
“Many financial institutions and corporates have made ambitious commitments on Paris-alignment or net-zero. And yet in plenty of cases, they don’t have a credible plan with associated metrics and governance practices to fulfill those commitments,” Caldecott said.
“There’s a big issue of a perceived lack of credibility here and an awful lot of greenwashing.
“So defining what a good plan looks like and making that good practice the market standard is essential work.”
The TPT’s effort, which is focused on all private sector firms, is widely seen as laying the groundwork for making transition planning mandatory, just as climate-risk disclosures are legally required in some jurisdictions.
And the United Kingdom government announced last month as part of its Green Finance Strategy that it will consult on requiring Britain’s largest companies to disclose their climate transition plans.
It’s not just in the United Kingdom where policymakers are focused on transition planning.
The Monetary Authority of Singapore said this month that it will support financial firms’ adoption of science-based transition plans, while the international Financial Stability Board said that among its priorities for 2023 is how financial institutions can use these plans to manage transition-related risks to financial stability.
GFANZ has published guidance on how banks and non-financial companies can structure transition plans.
Citigroup and BBVA, members of the steering committee of the Net-Zero Banking Alliance, a GFANZ subgroup, both said they used the transition planning guidance recommended by the industry group.
Rooke said he expects “tens if not hundreds” of transition plans from GFANZ members this year.
Rooke added however, that many of these plans may just be updates to existing documents or roughed-out first-time plans.
Indeed, there is some indication that this tide of transition plans won’t necessarily augur a new age of transparency – or reveal whether financial institutions have set realistic goals.
JPMorgan Chase & Co and Wells Fargo & Co recently told shareholders to vote against a resolution that would have made them publish transition plans.
But according to Rooke, producing a plan can be beneficial for both external and internal audiences.
“It is a really good way of sharing the thought process on how we are going to do this,” Rooke said.
“How we are going to mobilise people internally, our objectives and priorities, how we’ll implement it in our business strategy, how we’ll engage outside clients and portfolios and how we’ll measure progress.”
Rooke adds that it’s also a chance to explain how to take advantage of “economic opportunity” presented by the energy transition. — Bloomberg
