The ongoing shift to a focus on sustainable investing and getting banks to focus on climate change reflects a significant change. As always progress is not always only in one direction and there was a meaningful effort in the US at the end of 2020 to take a big step backwards. The US Comptroller of the Currency issued a rule that in essence required banks to continue to lend for fossil fuel projects and companies. As reported in Axios, this rule was finalised just before the change of administration despite opposition from many including the editorial board of the Financial Times. It is interesting that with General Motors now stating that they will stop selling fossil fuel powered cars by 2035 why there should be a bank rule requiring banks to lend for a product that will increasingly no longer be needed. The image of buggy whips comes to mind.
But despite this backward movement by the US Comptroller of the Currency, there are numerous examples of increased focus by banks, investors, regulators and governments on the need to address climate change. The year began with Christine Lagarde positioning the European Central Bank as a leader in addressing climate change as outlined in a survey by the Financial Times of a large group of economist.
And pressure on specific banks and initiatives by varied banks continue to move the banking industry towards a focus on financing that addresses climate change. HSBC will face pressure from its owners at its April shareholders meeting as reported in the Financial Times. Clearly other banks are feeling similar pressure as they try to demonstrate their commitment to addressing climate change. The Financial Times provided a very good summary of these efforts in an article in early January.
On the regulatory front the European Union continues its efforts to standardise reporting on sustainable finance as noted in the Financial Times. The Financial Times further noted the political pressure arising from this effort but it is clear that the ultimately there will be standard reporting that will allow investors to make informed choices relative to climate change action. In the US there was also a call for the Securities Exchange Commission to start requiring climate change reporting as noted in an opinion article in Slate. Given the many remarks from President Biden on the importance of addressing climate change, it is likely that this call will be answered.
So whilst it is not a purely positive picture, the pressure to put climate change as a priority for investors, companies and banks will surely be a key theme in 2021.
