47 Institutionalizing Climate Change Requirements in Lending and Investment Practices

Content description: Public policy coupled with financial institution capacity may be the balance required to institutionalize climate change requirements in both commercial lending and institutional investment practices. Over the past several years, the perceived role of commercial banks in climate change mitigation has grown significantly in attention. The potential leverage effect for a lending institution and investors to influence the behavior of clients / investee companies has resulted in the notion that financial institutions can impose lending and investment conditions that will have a positive impact on reducing greenhouse gas emissions. For commercial banks, a tremendous opportunity exists to manage the environmental risks associated with the business activities of portfolio clients (reducing portfolio footprint) as well as to structure financial products and steward portfolio clients to pursue carbon-related income streams. However, in practice many commercial banks are reluctant to systematically apply environmental considerations to lending operations. This is a common reality amongst emerging market banks that fear loss of business to competing banks that have not applied the same environmentally stringent principles. For institutional investors and fund managers, an opportunity exists to encourage investee companies to improve their management of issues such as climate change. There has been a multitude of investor initiatives emerge in recent years leveraging the power of large investors to seek improvements in corporate behavior. A new approach currently being piloted combines strengthening institutional capacity of commercial banks and investors to the benefits of integrating environmental considerations into lending and investment with direct engagement with regulators to develop public policy to support the application of environmental guidelines to lending and investment. Time will tell whether this approach may strike the balance required to move the commercial banks and investors in emerging markets to action. The model will be presented from both the commercial banking and investor perspectives. IFCs experience piloting public policy interventions with central banks in Pakistan, India, China, the Middle East North Africa region (MENA) and Brazil as well as UNPRIs experiences engaging regulators to develop voluntary frameworks for institutional investors. Experiences of FMO, NIBM and the Danish Commerce and Company Agency will enhance the discussion and offer complimentary perspectives. This cross-section of public policy for commercial lending and investors will lend itself to a participatory discussion from the audience. This workshop discussion will focus on: Public Policy Voluntary frameworks vs. regulated directives. Does the approach differ from country to country based on political/market orientation? Alternatives for tapping the pipeline of potential carbon-related projects in a banks portfolio. Win-Win-Win Improved environmental risk management, new business generation and positive contribution to climate change objectives. Market mechanisms for incenting banks to develop innovative financial products that mitigate climate change.
Wednesday, June 10, 2009: 9:00 AM-11:00 AM
Julie LaFrance
James Gifford , Viktor Kjr and Asish Saha
The Science of Climate Discourse
Matthew Haigh, Aarhus University; Nicholas Taylor, Outcrop
Full Papers
  • Haigh Shapiro Taylor, Joint Actions 2009.pdf (303.2 kB)