Banking and sustainability: an inseparable relationship

Since it was estimated that the investment required to decarbonize the European economy and comply with the 2030 Agenda amounted to approximately 220 billion euros annually until 2030, the unequivocal relationship between sustainability and the financial system became evident. This relationship has strengthened as regulators built a demanding regulatory framework aimed at promoting, in the most efficient, ethical, and transparent way, the private flow of capital towards sustainable projects. This interdependence between sustainability and finance has intensified with central banks’ efforts to supervise the actions of credit institutions to prevent climate risks from becoming a source of financial instability in the future.

In this playing field, banking becomes a central player in climate change adaptation and mitigation through four key areas:

• To adapt to current regulations and comply with the demanding regulatory framework being built in the EU,
• To meet the demands of their clients, investors, and shareholders, who are increasingly stringent on climate matters,
• Due to the sector’s capacity to finance not only renewable energies but also to contribute to and support the ecological transition, and
• Above all, due to the strategic component it represents, both in terms of managing climate change-related risks and capitalizing on the opportunities this transformation presents for the sector.

In this regard, the banking sector in Spain is addressing the development of sustainable finance through four major interventions:

1. Committing. That is to say, proactively, by seeking to anticipate regulatory requirements and, above all, through public commitments regarding alignment with the objectives set out in the Paris Agreement and the decarbonization of the economy. Among the most relevant commitments is the adherence of 75% of Spanish capital to the Net Zero Banking Alliance, the most demanding and ambitious agreement defined to date.
2. Managing. This management revolves around several key aspects:
   1. Elevating the sustainability function within the hierarchical structure of institutions. In some cases, reporting directly to the Board of Directors.
   2. Integrating sustainability into the institutions’ strategy to capitalize on the opportunities this trend represents.
   3. Managing risk, not only to comply with the regulatory framework but also due to the need to reduce the concentration of environmentally risky assets on bank balance sheets and, above all, to mitigate the risk that climate change poses to financial stability through stress tests, a basic exponent of central banks’ supervisory expectations.
3. Developing the organization’s capabilities through employee training courses. This is a fundamental effort for the development of sustainable finance, which must transition from designing a technical profile, detail-oriented towards regulatory compliance, to developing a more strategic profile with a strong capacity to influence different areas of the organization. Likewise, it is essential to develop basic knowledge across the entire organization to meet client needs.
4. Financing. That is, increasing the offering of green, social, and sustainable financial products and services. And, above all, proposing engagement programs to support clients in the transformation process towards a decarbonized economy.

In short, a banking sector that has decided to contribute to the decarbonization of the economy in a proactive, committed, and challenging way, as evidenced by the need to train different organizational levels according to their responsibilities.

Juan Carlos Delrieu, AEB Sustainability Director