As many countries around the world try and reach the ambitious goal set at COP26 of reaching Net Zero by 2050, just how is the banking sector adapting to the challenge? In this week's episode of The Exchange we explore how big banks across the world are investing in the green revolution.
Everyone has a part to play in the ongoing climate emergency gripping the planet, according to the United Nations. At its most recent climate conference, the organisation outlined some of the key challenges we face in tackling this problem, warning it’s ‘now or never’ for sectors to get their plans in place.
We are entering a critical decade in the battle against climate change. Global emissions must be reduced by nearly 43% by 2030 to keep global temperature rises within the 2 degrees Celsius limit. The UN indicates that further reductions could limit temperature rises to just 1.5 degrees Celsius if we treat our climate goals with the seriousness they deserve.
One sector going above and beyond to reduce emissions is the international finance community. Indeed, money talks, and the 'Green Revolution' requires substantial investment to truly make a difference.
Mahmoud Mohieldin, UN Climate Change High-Level Champion for Egypt and Executive Director of the International Monetary Fund, elaborated on his role in helping the UN reach its climate goals.
“As a UN climate champion I propose new ideas focusing on finance and partnerships. We work based on the good practice of disclosure and being transparent in everything we do”
The shift to sustainability has become a sector-wide initiative and banking leaders are spearheading projects that align with the UN’s targets.
In light of the Qatari Government's commitment to invest 75 billion dollars in a more sustainable economy, we spoke to Mohammed Azem Hamad, Chief Risk Officer at Qatar International Islamic Bank, about what this means for his organization.
“If we are talking about sustainability in banking, we are talking about strategic planning and executions of the banking corporations and the business activities while taking into consideration the three main pillars for sustainability: Environment, Social and Governance.” Hamad explains.
“Our strategy aligns with Qatar National Vision 2030 and also with United Nations sustainable development goals and the Qatar stock exchange market sustainable measures.”
Apart from helping build a greener future, what other advantages can the banking sector gain by investing in sustainable businesses?
“One of the benefits is to be perceived as being legitimate” according to Caroline Linhares, lecturer on climate at Sheffield Hallam University. “So of course we know that clients and commercial clients for example, have some funds – they are looking for green investments because of value based investments. There is this sense of being perceived as environmentally responsible, so they have to offer options to those investors”
Profit is a considerable motivator for banks, and businesses that adopt sustainable practices may see increased margins, leading to further investment.
“Now, one of the classic opportunities for business to improve profit is to improve a business’s efficiency, you can increase your market, increase the value of your items and the other is to increase the efficiency of whatever it is you are doing.” says John Grant, also a lecturer on climate at Sheffield Hallam University.
In conclusion, the global financial system is an unsung hero in the quest for a more sustainable future. Recognizing the benefits of green investments, banking leaders are proactively pursuing projects aimed at reducing emissions. The UN's Climate Change High-Level Champions are invaluable in ensuring this sector remains in line with the organization's climate targets. However, the UN itself asserts that a monumental shift is still required to avert a climate catastrophe.