Banks have started the great race towards the decarbonization of their balance sheets to adapt to the objectives of the fight against climate change and reduce their exposure and risk to the sectors and companies that postulate themselves as big losers of the great ‘green’ revolution. In the last two weeks, Santander and BBVA have announced their commitment to reducing financing for coal and other polluting economic activities by 2030. The announcement, which will gradually spread to the rest of the large national banks, involves cleaning up more than 12,000 million euros in this type of asset, according to an investigation by the NGO Urgewald.
Santander was the first to make a move by announcing on February 22 that as of 2030 it will not finance those electricity companies whose business derives from more than 10% of coal or those directly engaged in mining activity. This objective has added a series of milestones and flying goals that the entity intends to meet in the coming years, such as eliminating unnecessary single-use plastics in 2021 or consuming electricity in its corporate headquarters of 100% renewable origin in 2025.
12 days after Ana Botín announced its green commitment, BBVA responded last Friday by announcing that it will also abolish its coal financing before 2030 in developed countries and by 2040 in the rest of the countries where it is present. The bank headed by Carlos Torres will limit its resources, where appropriate to all groups that obtain more than 5% of their turnover in a way related to coal and also extends its veto selectively to other activities with the environmental impact such as agribusiness, energy, infrastructure, and defense.
Santander and BBVA are the two Spanish banks currently most exposed to polluting financing due to their international profile. Only between the two do they add up to three-quarters of those 12,000 million euros that Urgewald attributes to Spanish banks. This amount includes loan guarantees, and other financing instruments with different energy companies with a wide presence in the world of coal such as the Italian Enel -Endesa’s parent company or directly with mining groups such as Glencore. In any case, Spaniards are only a part of the more than 4,400 institutional investors and 665 banks all over the planet that currently continue to finance coal, and that they will have to shift their policies towards the green economy.
Putting aside coal will only be the first step but not the most important since this fuel accounts for only a small part of bank balances when compared to the weight of others such as oil or gas. In the case of BBVA, for example, financing for the latter two multiplies by 107 that of coal mining. Santander, for its part, indicates that it will make public its withdrawal objectives in the hydrocarbon field in 2022.
The rest of the large groups are expected to follow in the wake of Santander and BBVA after having signed the Collective Commitment to Climate Action promoted by the UN. This manifesto urged entities to gradually withdraw their funding for the most polluting activities, be more transparent in publishing their metrics related to climate change and encourage the contracting of financial products with a positive environmental impact.
Beyond their commitment to climate change, banks are obliged to act to comply with the new regulatory requirements designed by the European Central Bank, which from 2022 will launch its climate stress tests to monitor the actions of entities in this field. Santander and BBVA have gone ahead, but current European regulations require all banks to publish their specific decarbonization targets as of 2023. This examination will require identifying those risks that may affect the capital ratios of each group, specifying potential physical and transition risks, as well as their potential evolution in various scenarios in the short, medium, and long term.
At the national level, the draft Law on Climate Change and Energy Transition requires companies to produce an annual report on the exposure of their activity to the risks of climate change and the measures adopted. Other jurisdictions where stress test exercises are already carried out Holland, France, and England.