Banken and other financial service providers have been using the green, sustainable restructuring of the economy as a marketing tool for new financial products for some time. But when it comes to aligning your own business model with the goal of the Paris Climate Agreement, there are still large gaps between aspiration and reality. In a current study available to the FAZ, the consulting firm Zeb found that the 50 largest European banks are facing a marathon if they want to reduce the greenhouse gas emissions in their loan and investment portfolio to “net zero” by 2050.
Without going into details of individual institutes, the authors refer to the banks’ lack of transparency with regard to specific goals and comprehensible indicators. “The early measurement of emissions in bank portfolios and specific plans for reducing them over the next few decades are the main challenges for Europe’s financial institutions on their way to net zero. The previous announcements must now be followed by consistent action, ”recommends Dirk Holländer, Zeb’s lead partner and co-author of the study.
In most cases, the institutes examined have not yet set any specific goals and have not provided any insight into the greenhouse gas emissions of their loan portfolio, according to a central result of the study. The authors have therefore developed a method based on externally available data to determine the emission intensity of the loan portfolio. On the one hand, the size of the portfolio is decisive: the more loans are granted, the higher the emissions. On the other hand, it depends on which economic sectors are financed in which countries.
Commerzbank is at high risk
A few weeks ago, the American investment bank Jefferies came to the conclusion in a comparable analysis that Commerzbank had very high CO2 risks. On the one hand, the strong positioning of the bank in the financing of German corporate customers is likely to play a role here. Many loans to car manufacturers and suppliers lead to correspondingly high emissions. On the other hand, Commerzbank, with its subsidiary M-Bank, is a leading bank in Poland, which has very high CO2 emissions in relation to economic output (gross domestic product, GDP).
That would coincide with the Zeb results, because the consultants see greenhouse gas emissions as a reflection of lending with their individual priorities in certain economic sectors and countries. Western European universal banks have most emissions because they are very internationally active and CO2-intensive industries such as transport, traffic or energy have a high share of their business. Large German banks such as Commerzbank are likely to be among them. According to Zeb, Scandinavian institutes do better because they benefit from the high proportion of renewable energies in their region.
Data is the litmus test
The Zeb consultants advise the banks to further develop the measurement of their greenhouse gas emissions in order to be able to determine their starting point. After that, they should translate their goals into operational milestones. Building on this, the institutions should continuously report and review their portfolio issues. For Ekkehardt Bauer, senior manager at zeb.research and co-author of the study, data and data availability represent the fundamental problem across the entire topic of sustainability. The litmus test for every bank is data and data models, without which the route to Paris will not succeed. “Institutes that tackle the topic consistently and at an early stage open up opportunities,” says Zeb partner Holländer.
Because the banks play a key role in the green transformation of the economy and society. The financing and investment volume will be substantial. This also applies to German banks, which have to finance a correspondingly larger restructuring in the future due to the high emissions burden of German industry. Ultimately, the supervisory authorities such as the European Central Bank (ECB) will soon be forcing banks to identify and quantify their climate risks, for example in stress tests. Good quality data models can help to capture the risks more precisely. This affects the equity backing of the lending business. Reliable issuance figures from banks are also becoming increasingly important for institutional investors.
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