The Spanish banking sector is one of the most committed globally in the fight against climate change, as demonstrated both by the high percentage of Spanish banks among the initial signatories of the Collective Commitment to Climate Action (CCAC) and by the extension, just a few months later, to a sector-wide commitment covering virtually the entire industry. In this context, Spain’s leading banks made significant progress throughout 2020, placing them among the most advanced on the climate agenda.
Accordingly, Spain’s leading banks have set sustainability targets and begun work to align their portfolios with climate objectives, in many cases starting with the introduction of exclusion policies. In some cases, the initial portfolio analysis has taken a sector-based approach, beginning with sectors such as automotive, manufacturing, power generation or mortgages, with the aim of progressively extending it to the rest of their portfolios.
From a governance perspective, processes have been established to ensure the involvement of the board of directors, with the support of senior management and the various responsible functional areas; the leading banks also have dedicated sustainability teams.
Banks have begun to adopt an approach that takes into account both the risks and the opportunities arising from climate change, and to report on this in their annual reports.
On the risk side, leading banks have begun to use methodologies to analyse climate risks and integrate them into the overall risk framework, and are expected to develop scenario-based analyses as the next step.
In terms of products, the banking sector has developed a broad range of green products including, among others: project finance, syndicated loans, green bonds, trade finance, financing for the agricultural sector, car finance, green mortgages, loans to improve energy efficiency, and advisory services. The aim is to help clients transition to a less carbon-intensive economy. As a next step, banks will begin to classify their products within the framework created by the EU Taxonomy.
In addition, Spanish banks have been particularly active in adopting international standards, collaborating with other financial institutions and engaging with the main international initiatives underway. In this regard, the leading institutions have generally begun to align with the TCFD recommendations, with several Spanish banks participating in the UNEP FI pilot project to promote the implementation of those recommendations.
Finally, banks have also broadly begun a significant internal training effort that will need to continue in the coming years, especially in areas related to products, regulation and methodologies, and be extended to all areas and segments within banks.
All these actions carried out by Spanish banks have been recognised internationally, leading, for example, some of them to top positions in global benchmark indices such as the Dow Jones Sustainabilty Index.
Joining forces
Aligning a bank with the objectives of the Paris Agreement is a process that first requires integrating climate action holistically into business strategies. This entails using various tools and methodologies that enable a thorough understanding of the bank’s business and its investments and, ultimately, the creation of opportunities and the generation of impact. In this process of shared learning, it is also essential to share experiences and best practices with other institutions, as well as to help raise awareness and drive behavioural change among clients and society at large.
This is a gradual path that, in its first stage, involves moving into action and making commitments, such as those undertaken by Spanish banks at the end of 2019. This is followed by a second stage, in which we are currently immersed, involving the development of standards, tools and methodologies that make it possible to measure and make those commitments tangible. All of this should lead to banks’ portfolios achieving significant emissions reductions by 2030 and, ultimately, seeking to achieve climate neutrality with 2050 as the target year.
Throughout 2020, the Spanish banking sector, with the support of AEB, CECA and ICO, focused its efforts on trying to make progress on the most important challenges identified for the adoption and design of the strategies being developed by institutions. Specifically, significant challenges were identified stemming from the lack of availability of homogeneous and reliable data, the lack of harmonisation and standardisation of tools and methodologies, and the need for team training.
For this reason, the Sustainability Committees of AEB and CECA, together with ICO, have coordinated their efforts to align knowledge across institutions, designing a work plan focused on three pillars: organising workshops/webinars in which different providers shared their views on how to address climate change-related risk; creating a repository of best practices; and collaborating and coordinating with the Netherlands and Germany, also signatories of their respective national climate action agreements.
Looking ahead to 2021, the sector will continue to deepen the alignment of knowledge regarding the different methodologies, both nationally and through international exchanges of experience with Germany and the Netherlands. In addition, it may be particularly interesting to pursue a joint initiative among Germany, the Netherlands and Spain as signatory countries to their respective commitments. Furthermore, the sector will need to monitor UNEP-FI guidance to facilitate the definition of targets that institutions must publish by the end of 2022 in accordance with the commitments undertaken when joining the Climate Action Agreement. Adapting this guidance to the Spanish banking sector will be a central focus during 2021.
Lastly, the next stage on the path towards sustainability appears to be marked by achieving climate neutrality (“Net-Zero”) in 2050. COP26, to be held in November 2021 in Glasgow, appears to be the appropriate forum to showcase the sector’s commitments in that direction.
You can view the full document here “Review of the Spanish banking sector’s commitment to climate action”
