Carbon & banks

If we are to achieve the agreed target reductions of carbon a radical shift in the way we do business will be required. This means a massive investment in low carbon, coinciding with reductions in carbon intensive activities.

Some banks are taking advantage of the investment potential in low carbon technology; some see carbon as an opportunity to differentiate their brand; some are already identifying growing market segments in renewable technology and decentralised energy infrastructure; and others are looking into low carbon consumer products.

The fresh crop of 2006 corporate responsibility reports has brought with it an increase in commitments from banks to look at carbon neutrality (Lloyds TSB 2006 Corporate Responsibility Report) and renewable energy investment (Barclays 2006 Corporate Responsibility Report). But few banks have defined a comprehensive response to climate change and carbon risks and opportunities, including:

• Operational impacts;
• Strategies to respond to long term challenges and opportunities presented by carbon in the loan book; and
• Strategies to support climate change adaptation.

So what are the carbon risks or opportunities for a bank?  One challenge in answering this question lies in being able to accurately assess risks and opportunities for the bank, their customers, the environment and society. Currently, there is no comprehensive body of work available that identifies which activities present the most carbon risk or value to a bank, and if any of these present material risks. Such an assessment requires good data on the value of carbon across different banking activities.

Carbon risk - examples of carbon risk exposure for banks

Carbon opportunities - highlights business opportunities for banks

Measuring carbon - key challenges and questions on how banks can measure carbon in the loan book

Managing risks and opportunities - suggestions on how a bank can address risks and opportunities