Climate change and the 2030 Agenda are not only modifying the landscape of our environment but also the way we address the challenges we face as a society. This transformation toward a more environmentally responsible economy is full of opportunities that must translate into new business models and new ways of meeting the increasingly demanding demand for sustainable goods and services.
The other side of the coin is the potential risks caused by climate change. In this regard, it is imperative that public incentives be designed so that companies become aware of the social cost of the consequences of emitting greenhouse gases. Financial institutions must also integrate the threats arising from long-term climate change into their risk management processes, despite the fact that physical risks are generally unpredictable and there is a lack of information regarding their potential impact on banking assets. Added to this uncertainty is that of transition risks, which are also difficult to manage due to the absence of comparable data and the diversity of methodologies and their proper interpretation.
The Institute of International Finance (IIF), the European Banking Federation (EBF), and the European Banking Authority (EBA) have just jointly published the results of surveys that agree in pointing to the lack of timely data and the lack of training of executives and financial analysts as two of the main obstacles limiting the advancement of sustainable finance. This is not surprising, since impact analysis methodologies, whether measurement or scenario-based, are complex to formulate and, even more so, to interpret. Only 15% of the banks surveyed by the EBA conduct scenario analysis, which is paradoxical, since without this type of tool it will be difficult to establish adequate management of climate change-related risk.
For this reason, training and capacity building on basic topics related to sustainable finance must be a short-term priority, but it cannot rest solely on readings, conferences, and research articles. It is essential to advance with structured courses and workshops that demonstrate that sustainable finance goes beyond a new offering of products and services—that it is a new way of understanding finance. Currently, the teams responsible for assessing climate change, in addition to social and governance risks, usually come from adjacent areas with more generalist training, so as the decarbonization of the economy progresses, it will become increasingly important to have the right talent. If the current level of knowledge and experience remains in the coming years instead of increasing, the lack of talent could have a negative impact on the financial system, as decisions will become increasingly complex and urgent.
In addition to seeking greater specialization of key personnel, it is necessary to generate the appropriate culture. To this end, beyond the commitment emanating from the board of directors, it will be essential to share best practices across areas to foster awareness and deepen knowledge of these issues.
In this delicate balance between risks, obstacles, and opportunities, it is desirable to have a well-designed, stable, and predictable regulatory framework that defines incentives, emphasizes the need for accurate information, and sets the appropriate transformation path so that no one is left behind. Only in this way can the financial system have a multiplier effect as an agent of change that accelerates the inexorable productive and social transformation aligned with the 2030 Agenda and directed toward a carbon-neutral economy.
It is essential that the Administration contribute to mitigating the high uncertainty surrounding the complex nature of climate change with harmonized regulation so that all agents involved in the climate challenge learn to walk at the same pace along the path of shared responsibility.
Spanish banks are prepared to face these challenges by sharing best practices among themselves, as demonstrated in the Collaborative Agreement for Climate Action signed at the end of 2019 within the framework of the Climate Summit (COP25). With the same spirit, the Center for Sustainable and Responsible Finance (FinResp) was created, formed by the entire Spanish financial system to contribute to transforming the productive fabric and Spanish SMEs toward a more sustainable economy through collaboration, capacity building, and knowledge dissemination.
Juan Carlos Delrieu, Director of Strategy and Sustainability at the Spanish Banking Association
