How climate change issues are impacting banks’ reputations on the road to COP27

Since the COP26 conference, stakeholders have had an opportunity to observe – and judge – the action taken on climate commitments made by the world’s leading banks. In the run up to COP27, the success of financial services firms in meeting their targets is coming into sharp focus – and directly impacting their reputations

During the heady days of COP26 in November 2021, 500 global financial services firms, under the banner of the Glasgow Financial Alliance for Net Zero (GFANZ) agreed to align £130trn of investments with the Paris Agreement climate goals. The alliance issued a statement that more than 40% of the world’s financial assets would be leveraged to achieve a net-zero economy and limit global warming to 1.5C above pre-industrial levels.

Commitments included reducing portfolio emissions by 25% by 2025 and reaching net-zero by 2050. Most of the West’s major banks signed up to using science-based guidelines to inform investment decisions, while developing practical plans for transition, and making the necessary adjustments to their business models.

But in the months since COP26, what have financial services firms achieved in relation to these commitments? And how are stakeholders perceiving their progress?

Walking the walk

Research by alva shows that partnerships such as GFANZ elicit positive sentiment towards the banking sector. The alliance is apparently working hard, having published five reports recommending voluntary actions for “developing and implementing credible, high-ambition strategies for achieving net-zero”. But, with COP27 in Sharm El Sheikh, Egypt, rapidly approaching, the need to demonstrate tangible action as well as intention is pressing.

So far, not so good. A report by UK charity ShareAction revealed that 25 European Net-Zero Banking Alliance (NZBA) members have provided at least $38bn in financing to expansionary upstream oil and gas companies. Half of that financing was provided by four of the founding signatories: Barclays, BNP Paribas, Deutsche Bank and HSBC.

However, individual organisations within the sector attract widely varying sentiment around climate change. By scoring content mentioning the world’s top banks in relation to COP27, alva analysis has surfaced the issues of most concern to stakeholders, the actions attracting positive reporting, who is doing well, and which FS giants are struggling to meet their environmental goals.

Some banks are reputationally robust. Bank of America polled well following a keynote speech by its MD of ESG Advisory at a climate event hosted by the World Bank and Imperial College. NatWest also received positive sentiment for the promise of £100bn of climate and sustainability funding and financing by the end of 2025.

Other financial institutions have garnered a more mixed response to their environmental activity. Barclays engendered positive reactions to its support of Property’s Week’s Climate Challenge event, but this was insufficient to balance out negative coverage of a ShareAction report highlighting its financing of oil extraction. Goldman Sachs, meanwhile, was condemned for greenwashing following the launch of an investigation by the SEC into its ESG investment funds.

HSBC scored particularly badly after a senior executive was suspended for making cavalier comments about climate change, accusing central bankers of exaggerating the financial risks. The offence caused and subsequent debate around freedom of speech generated large – largely negative – media volume, which the bank’s insistence that the executive had been “misinformed, misguided and deeply irresponsible” failed to mitigate.

Stakeholder pressure increases

Progress on climate commitments is undeniably impacting financial services firms’ reputations. Climate change is the biggest intergenerational issue faced by global organisations, driving sentiment among shareholders, consumers, communities and campaigners. It is a consideration that no board can afford to ignore, and on which they need to be seen to be taking proactive action.

Stakeholders are making their climate concerns clear in ever more forceful ways. alva’s research shows that climate protests have significant power to negatively impact banks’ reputations, and campaigners aren’t holding back. Major banks including Barclays faced disruptions at their AGMs from climate groups including Extinction Rebellion, protesting the bank’s financing of fossil fuel extraction.

Credit Suisse was also subjected to disruption at its AGM for backing ‘climate chaos’. HSBC’s chairman faced a flashmob singing a revised version of Abba’s Money Money Money condemning fossil fuel investment. Meanwhile, Standard Chartered was targeted for financing some of the world’s biggest polluters – in breach of its own climate goals.

Mitigate and manage climate change reputational issues

With COP27 on the horizon, financial institutions need to understand and respond to the priorities of their stakeholders over climate change. They cannot afford the reputational damage linked to greenwashing or the financing of global warming activities.

HSBC, one of the banks attracting the most negative visibility, is a prime example of an FS firm working to change perceptions around its climate activity. In February, it joined a coalition of energy transition leaders to support decarbonisation of downstream energy facilities in Egypt. In May, the bank announced it was providing a £120m sustainability-linked loan to finance circular water projects in the Middle East. And it has partnered with the Egyptian-British Chamber of Commerce, backing the Road to COP27 event on increasing green collaboration in the energy sector.

While this type of mitigation is valuable in reducing reputational risks and halting spiralling negative reporting, transparency and authenticity are even more vital. The UN Climate Change Conference is an annual event, and the stakeholder issues relating to it will surface every year. The financial services industry, alongside every other sector, is always on the road to COP.