Credibility in the Climate Transition

What does a credible climate transition look like for banks?

By Lydia Hascott, Climate Safe Lending Fellowship Lead, July 2022

If you work for a bank, how do you know if your institution is on track to meet Paris-aligned climate goals? And what is your role in helping it get onto a credible trajectory? In our experience ‘climate intrapreneurs’ who are catalysing the net-zero transition within banks are continually having to ask themselves these questions. The answers are deeply nuanced and constantly evolving. 

That’s why we’re bringing together a cohort of climate intrapreneurs around the theme of ‘Credibility in the Climate Transition’ through the next Climate Safe Lending Fellowship

 
 

We have observed that there are four big questions climate champions within banks tend to be asking themselves:

1. What does a credible climate transition mean and what does it look like? 

Insights from our previous Fellowship cohort revealed that climate champions within banks are constantly asking ‘What does good look like?’. 

At the level of targets, policies and transition plans, what ‘good’ looks like is hotly contested across the net-zero banking ecosystem and is frequently being revised. Climate champions within banks are having to repeatedly calibrate and recalibrate, which can often feel frustrating and exhausting. Having a tribe of peers to navigate this ever-evolving landscape with can make a tremendous difference. 

“We thought we were on the right track and then they came out with new guidance.” - Sustainability Director

In asking what a credible transition means, we also need to ask ‘credible to whom’? From a profitability perspective, a bank wants its climate commitments and progress towards them to be credible to stakeholders like customers, investors and regulators. But zooming out to the bigger picture, a bank’s transition ultimately needs to be credible in the eyes of climate science and those who stand to be worst impacted by the failure to transition our economy equitably and quickly enough. 

“As financial services professionals, we live and work in cities. And yet, we are trying to make changes from a multi-storey skyscraper for the benefit of something that is separate from us and ‘out there’. How do we rekindle and strengthen that connection?” - Portfolio Manager

2. How credible is the climate trajectory my bank is currently on? 

Climate champions within banks also want to understand how well their bank is doing relative to best practice. It can be deeply uncomfortable to look into the mirror that NGO analysis holds up to the banking sector on its climate performance - especially if you’re working as hard as you can to get your bank on track, only to receive feedback that you’re not there yet. 

“As a global society, we're not going to hit 1.5 degrees and we banks aren't even close to doing what we need to to reach 1.5 in our own portfolios. As a sector we've made all these commitments but the gap between where we are and where we're headed and where we need to go is just as stark as ever. The Fellowship is an important place to evolve our thinking.” - Chief Sustainability Officer

This realisation can evoke a paralysing sense of despair in climate intrapreneurs. What helps is coming together with likeminded peers in a supportive process to acknowledge and transform the pain we feel for the world into new perspectives that help us take action in new ways.

3. What are the barriers to my bank’s climate transition being more credible? 

Climate advocates within banks instantly know the answer to this question as it stares them in the face every day. Sometimes the barriers to climate progress stem from a lack of buy-in at the leadership level. Yet even in those banks with a Board and Executive level mandate to transition there are very real practical challenges that put a handbrake on progress. 

We know that these barriers are sometimes technical such as: accessing good quality data from clients; lack of clear, business-specific taxonomies; and, piecing together strategies from a mosaic of half-suitable methodologies. 

That said, some barriers are organisational in nature. This includes having reporting lines, business processes and employee incentives that are not fit for purpose to enable the transition.

As organisations are made up of people, there are also deeply human barriers. These often feel the most challenging to address and include things like transforming mindsets, navigating internal power dynamics, building buy-in and fostering culture change. 

We have seen that climate champions within banks benefit hugely from pre-competitive, collaborative environments where they are able to transparently explore their challenges and develop new ideas for the way forward. This is the kind of space the Climate Safe Lending Fellowship creates. 

“I underestimated how helpful it is to know other people are doing similar roles. It can feel isolating as it’s niche/specialist. It’s really valuable.” - Climate Lead

4. What is my role to play in overcoming these barriers and enabling a credible climate transition in my bank? 

Given the size of banks and the banking sector, it is clear no single person can decarbonise an entire bank’s balance sheet on their own. To be most effective and avoid burnout, bank climate champions need to establish where their skills and relationships will enable them to create the most change and focus there. 

“My big takeaway from the Fellowship was getting clear on “What is mine to own?” This helps me to hone in on where I can have the biggest impact – leverage the prominence and skills my team has – then bring in others.” - Sustainability Director

Join the Climate Safe Lending Fellowship

These are the four big questions that we will be exploring with the next Climate Safe Lending Fellowship cohort. We are searching for a global cohort of ambitious banking professionals, across a diverse range of roles - all who are working to catalyse a credible climate transition within private sector, commercial banks.

Fellows will build their knowledge, networks and skills for enabling their institutions to make a credible transition on a trajectory that will achieve Paris-aligned climate goals. Through expert workshops, coaching and network-building they will be supported to unlock changes within their banks that align strong climate ambition with rigorous climate action.

Banking professionals can find out more about Fellowship here and register for our next Taster Session to experience the programme in practice.

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"The pace of change is staggering and the demands in the climate space are immense. Most banks are grounded in the fact we need to set climate targets and make climate disclosures. But they are all asking the same questions - 'how will we do this?', 'what will the transition actually look like?', 'what will this mean for our business lines'?.

The Climate Safe Lending Fellowship is central to making progress on a credible climate transition. It is about culture change, creating broader understanding, and building a movement inside our banks. The technical work is only part of it."

Ivan Frishberg, Chief Sustainability Officer, Amalgamated Bank; Steering Committee Member for Partnership for Carbon Accounting Financials (PCAF) and the Net Zero Banking Alliance