Financing the future: banks tackle the climate crisis

When we talk about institutions and environmental impacts, we do not tend to think about banks. They are not major direct emitters of CO2 compared to other sectors (1.02% of emissions in Europe, according to Eurostat). Although it may be the case that banks do not work directly in the environment, their financing and investment policies are decisive when it comes to implementing projects that lead the ecological transition and allocating their capital to initiatives that contribute to the decarbonisation of the economy. In addition, natural disasters brought about by the climate crisis can seriously damage assets and reduce customers’ ability to pay, so aligning loan portfolios with the Paris Agreement is also essential for financial institutions at a strategic level.

By way of example, BBVA has made a commitment to reduce the environmental impact of its activities as part of its strategy to combat climate change and promote sustainable development. Through the Global Eco-efficiency Plan (GEP), and in line with the targets outlined in its 2025 Commitment on climate change, the organisation became carbon neutral in 2020 with respect to the direct environmental impacts of its operations, and it has announced that it will also be carbon neutral in terms of indirect impacts (its customers) by 2050.

In recent years a number of initiatives that strengthen the link between finance and sustainability have been launched. These include the United Nations Principles for Responsible Banking, a movement that entities such as BBVA have joined. The framework aims to ensure that banks become a benchmark in innovation and good practice, maximising their positive impact on society.

Mobilising capital for a fair transition

To achieve that positive impact, the commitment to sustainability must be overarching and permanent. During the 2021 South Summit panel discussion ‘The bottom line of making the right choices’, which took place on 5th October, the role of the financial sector as a major player in sustainability was addressed. BBVA’s Director of Sustainability Ricardo Laiseca participated in the event. The expert stated that sustainability is a multidimensional concept, that it has to be at the heart of any organisation and that, in the case of BBVA, it permeates much of the business strategy. He insisted that it should involve a universal effort, across all of an organisation’s departments, and that it should also mean creating new opportunities for customers.

In this regard, a study by Spainsif on Sustainable Banking concludes that financial institutions should encourage the use of environmental, social and good governance (ESG) criteria, as well as training employees to replace the current product placement mentality with one focused on matching what is on offer to the needs of each customer.

For his part, when Jacobo Anaya, Director of Sustainable Energy and Finance at BBVA Spain, was asked what a banker was doing on a sustainability panel at South Summit 2021, he made it very clear: ”The bank’s role is to finance the ecological transition”. This was during his contribution to the talk ‘Sustainability at the core: value proposition for customers, partners and corporate projects’ at the latest edition of southern Europe’s leading innovation event. During the session, Anaya emphasised that the solution to the climate crisis lies in the technology provided by researchers and startups, for example, but also in the finance sector and how it addresses its users: “One of our main responsibilities is to educate and advise our customers on the Net Zero Agenda.”

Anaya also insisted that one of the toughest barriers to overcome in the ecological transition is training and knowledge, as “both companies and consumers need to be aware of what technologies are available to mitigate their environmental impact, along with the different options that exist to finance them”. In fact, with its Environmental and Social Framework, BBVA has committed to ending its exposure to coal-related activities, stopping financing companies linked to the coal industry by 2030 in developed countries and by 2040 in the other countries where it is present.

Opportunities for all

For both the financial institutions themselves and for the environment and society, sustainable banking must generate added value that turns challenges into opportunities, adds the Spainsif report. At the event Laiseca, very much in line with Anaya, emphasised that banks need to understand that their role is “to finance the future”, mobilising capital into real life and being a channel for public funds.

In addition, he revealed that their major discovery as a large financial institution is that they are not only a tool to help big businesses tackle an ecological transition, but also for smaller customers such as SMEs: “We are working towards a future where we can give a sustainable alternative to any financial decision; we want to be an organisation that offers opportunities to everyone”.

Since 2018, BBVA has allocated over €67 billion to green financing as part of its commitment to channel up to €200 billion by 2025 into projects that help fight climate change. Laiseca specified that the bank has put into effect rewards for its employees based on their environmental performance, a common and on-trend practice in other large corporations that contributed to the panel, such as Endesa and Telefónica.

The Director did recognise, however, that the main challenge facing BBVA with regard to sustainability is, in addition to the knowledge gap that Anaya highlighted, the data gap: “Sometimes we aren’t aware of our customers’ situation, meaning that we have to opt for a holistic and pragmatic approach that allows us to remedy this disparity”.

In this sense, for Laiseca there are two key elements in promoting innovation and achieving success. The first is to know customers better – know where they are and what they need. The second is to use some imagination: “We need much more creativity in business, anticipating what the world will be like”.

As we have seen during the pandemic, when humans are aware of the seriousness of a problem they can work together to address it. The underlying climate crisis has already motivated collective action that unites individuals, the public sector, scientists, investors, financial institutions and all kinds of companies.

Customers no longer demand banks that are simply responsible for their savings, they now also insist on respect for the social and environmental setting of the projects they finance. The commitment of the actors involved shows that there is a willingness to change things.