Liontrust Sustainable Investment Engagement and Voting Annual Review 2021 - Flipbook - Page 13
How banks can help the energy transition
STUART STEVEN
Banks have a key role to play in the shift towards a low-carbon
economy, with their lending policies, influence with corporates
and scope to provide sustainable financing all vital to reducing
greenhouse gas (GHG) emissions.
From our analysis, it is clear different regions and countries are
moving at radically different rates, however. Specifically, the
majority of EU and UK banks are embracing scientific-based
approaches that are broadly consistent with the Paris Agreement,
whereas countries such as the US and China are not there yet.
Across our SF bond portfolios, we aim to invest in banks that are
targeting net-zero by 2050 or before (including indirect Scope
3 emissions), and most are looking to achieve this through a
combination of the following factors:
• Reducing lending to high-carbon sectors: As part of our
analysis of banks, we are looking to assess the standard of
policies that control lending to controversial sectors; consistent
with our screening criteria, we will not invest in those where
lending to these areas exceeds 5% of the total. This can involve
targets to exit financing to coal-fired power stations and thermal
coal mining, for example, with dates typically dependent on
where a business is based. For those in developed regions (EU/
OECD), most banks are aiming to stop this lending by 2030,
whereas the end point is more like 2040 (due to humanitarian
concerns) in the developing world. Similarly, we also look for
Paris alignment for lending to oil and gas companies.
• Provision of green/sustainable finance: On top of avoiding
controversial sectors, many banks are also setting out detailed
targets to provide lending to sustainable and green companies
and projects. HSBC is a strong example here: having met its
initial target of $100 billion between 2017-2020, it is now
aiming to provide aggregated lending of between $750 billion
and $1 trillion to support decarbonisation of corporate clients
by 2030. This equates to between 25% and 30% of its total
loan book.
• Working with corporates to reduce their emissions: As a further
measure, banks including NatWest and Lloyds are seeking to
cut emissions within their corporate loan book by at least 50%
by 2030. This is interesting as it ensures the transition is taking
place across a broad range of sectors, including SMEs and
micro-cap companies.
• Improving the energy efficiency of their mortgage book: While
still at an early stage in the UK and Europe, we are starting to see
this become more of a focus, with several banks setting targets
to improve the average energy rating of their mortgage book.
Best in class at present appears to be Rabobank, whose current
mortgage book has an average energy rating of C, with a stated
target to improve this to B by 2024 and A by 2030.
• Ensuring ESG is incorporated across divisions: Several
banks in which we invest also have asset management,
wealth management and insurance operations; given these
subsidiaries are key providers of capital to the economy, we
also analyse the level to which ESG is incorporated within
these divisions. Lloyds Scottish Widows, for example,
has introduced formal exclusionary criteria, resulting in
significant divestments by its investment portfolios.
Liontrust Sustainable Investment: Engagement and Voting: Annual Review 2021 - 13
