IIGCC launches climate framework for banks

August 11, 2022

IIGCC’s net zero investment framework will address investor concerns about bank exposure to climate financial risk

The Institutional Investors Group on Climate Change (IIGCC) has collaborated with the Transition Pathway Initiative (TPI) to create an investor-led framework of pilot indicators to assess banks on the transition to net zero.

According to the IIGCC, investors are becoming increasingly concerned about the climate-related financial risk confronting banks.

To address this, the framework of pilot indicators is intended to be a key tool in supporting shareholder engagement with banks on net zero.

Intentionally ambitious, the framework reflects the need to focus on the ultimate goal of 1.5°C alignments, which the Intergovernmental Panel on Climate Change (IPCC) identified as being necessary for its Sixth Assessment Report.

The need for an assessment framework for banks is underpinned by investors wanting to manage their own net-zero alignment and stewardship of portfolio companies, IIGCC explained.

Natasha Landell-Mills, head of stewardship at Sarasin & Partners and co-chair of the IIGCC banks working group, noted that the framework highlights banks “still have a long way to go to ensure they are the catalysts for climate action that we need them to be. The level of urgency must rachet up”.

IIGCC anticipates that performance will improve over time as banks begin to implement existing net zero commitments and respond to evolving regulations.

Meanwhile, shareholders have a responsibility both to engage constructively and to hold banks to account, according to IIGCC.

Used in conjunction with IIGCC’s Net Zero Stewardship Toolkit, the final framework may be used to help investors evaluate the climate-related performance of banks in their portfolios, and engage in dialogue with individual banks.

Among other factors, the framework may additionally be used to set objectives for engagement and a strategy for meeting them, and assess progress against the indicators, and inform AGM engagement activities, such as voting where progress has been deemed insufficient.

Stephanie Pfeifer, CEO, IIGCC, says: “While the analysis is based on pilot indicators, the emerging picture is of a banking sector that needs to substantially accelerate its decarbonisation efforts to align with a 1.5°C pathway.

“Given the integral role banks play in directing capital across entire economies, aligning banks’ activities with net zero is key to delivering global decarbonisation.”