climate principles progress review

8/9/2019 Climate Principles Progress Review

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Climate PrinCiPlesProgress reviewJanuary 2010

Report by


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DisClaimerThis report includes information obtained or deried from a ariety of publicly aailable sources. Neither The Climate Group nor PricewaterhouseCoopers LLP (PwC) haesought to establish the reliability of these sources or erified such information. Neither The Climate Group nor PwC gies any representation or warranty of any kind (whetherepress or implied) as to the accuracy or completeness of this report. It is for general guidance only and does not constitute inestment or any other adice. Accordingly, it isnot intended to form the basis of any inestment decisions and does not absole any third party from conducting its own due diligence in order to erify its contents. Beforemaking any decision or taking any action, the recipient should consult a professional adiser.

Neither The Climate Group nor PwC accept any duty of care to any person for the preparation of this report. Accordingly, regardless of the form of action, whether in contract,tort or other wise, and to the etent permitted by applicable law, neither The Climate Group nor PwC accept any liability of any kind and disclaim all responsibility for theconsequences of any person acting or refraining to act in reliance on this report or for any decisions made or not made which are based upon the report.

CoPyright notiCe 2010 PricewaterhouseCoopers LLP. All rights resered. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP a limited liability partnership incorporated inEngland or, as the contet requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate legal entity.


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foreworD

exeCutive summaryseCtion one:Managing OperatiOnal eMissiOnsseCtion two:DevelOping apprOaches that integratecliMate issues intO Business activities

2.1 research activities 2.2 asset ManageMent 2.3 retail Banking 2.4 insurance anD reinsurance 2.5 cOrpOrate Banking 2.6 investMent Banking anD Markets 2.7 prOject Finance

seCtion three:BrOaDer engageMent with stakehOlDersannexes: annex i: MethODOlOgy FOr

pricewaterhOusecOOpers review annex ii: aBOut the cliMate principles

annex iii: results OF review OFaDOpting institutiOns

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Contents


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Finance was the big success story of the United Nations Climate Change Summit in Copenhagen.

The unanimous agreement on a fast-start fund of $30 billion oer the net three years and total support

of $100 billion a year for deeloping countries by 2020 was a remarkable achieement.

That consensus was achieed on financing in Copenhagen is all the more surprising gien the economicbackdrop. Many of the countries that pledged new funding support are still recoering from one of theworst economic downturns in the last fifty years.

The speed and global nature of the response to the economic crisis has proed to be an ally in the fightagainst climate change. The sheer size of the economic collapse meant people quickly came to termswith a scale of economic infusion neer imagined before. It got people comfortable with the size of theworld economy and what was needed to put it back on track. Since then, discussing the $100200 billionneeded to mitigate dangerous climate change seems far more probable.

On top of the $100 billion to support deeloping nations, approimately $20 billion has been made aailableto support first generation carbon capture and storage projects globally and $3.5 billion has beencommitted by Australia, France, Japan, Norway, the United Kingdom, and the United States as fast-startfinancing for rainforest countries to build capacity and reduce emissions through forest conseration.

Yes, there are many questions that still need to be answered. What will the sources of these funds be?What will the balance be between public and priate financing? And what are the most effectie delierymechanisms of this critical funding?

But the leading financial serices companies that hae adopted the Climate Principles are in a strongposition to proide answers. Their epert research and deelopment teams hae been gatheringinformation about the risks and opportunities in a low carbon future. These banks and reinsurers arepositioning themseles to roll out the kinds of products and serices their clients and consumers are

beginning to demand.

The first Reiew of the Climate Principles clearly demonstrates the enormous opportunity for banks andinsurance companies in a low carbon future. Howeer, the Reiew also indicates that companies in thefinancial serice sector need to moe faster. For eample, they need to support the power sector as it adoptsand scales-up cleaner, greener technologies. And we need them to do so at a much accelerated rate.

The latest announcements about public sector spending should stimulate priate sector inestment.This will also create opportunities for new public-priate sector partnerships. We hope the ClimatePrinciples adoptors will play a significant role in shaping policy and proiding support for these criticallow carbon projects.

This Reiew also shows how retail customers hae largely been neglected in the discussion about the newenergy economy. We beliee there is a huge opportunity for financial serice products to help consumersmake smarter choices and reduce their own carbon footprint.2010 is poised to be an eceptional year for the low carbon economy. And the finance sector will be at thecenter of the transition. The Climate Principles adopting institutions hae positioned themseles at theforefront of this financial reolution.

Make no mistake: we will challenge ourseles and each of our partners to act swiftly and decisiely on therecommendations outlined in this Reiew. But we will also continue to identify the enormous opportunitiesawaiting companies that moe us boldly towards a clean, green and prosperous future.

steve hOwarD, Ceo, the Climate grouP

foreworD

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exeCutive summary

In December 2008, Crdit Agricole, HSBC, Munich Re, Standard Chartered Bank and Swiss Re adopted theClimate Principles (the Principles see Anne II for an oeriew), the first comprehensie framework tohelp financial institutions manage the key opportunities and risks of climate change (an initiatie led by

The Climate Group).

One year on, PricewaterhouseCoopers LLP (PwC) independently reiewed how adopting institutions arefulfilling their commitments to these Principles. The assessment was based on information aailable inthe public domain backed up with supplementary interiews with the institutions.01 The etent ofimplementation of the Principles is categorized into four leels, as shown in the table below.

the aDoPting institutions have maDesignifiCant Progress anD in some areasare leaDing their seCtor.

Progress anD foCus for aCtionIn Section 1.0 of the Principles, institutions demonstrated that they are meeting all commitments, withactiities categorized as either at the leel of mature programs or implementing programs. This is asepected gien that the management of direct operational impacts on climate change (e.g. buildings, fleets,business trael), and employee engagement are prerequisites for adoption of the Principles. The main focusfor continued improement in this area is on increasing the clarity of how commitments on climate change

are managed across the businesss operations for eample by stipulating roles and responsibilities acrossbusiness diisions and geographies and increasing the use of metrics to demonstrate progress.

The adopting institutions hae also made good progress on engaging with eternal stakeholders such aspolicy makers. In Section 3.0 of the Principles, 87% of the commitments are at the mature programs orimplementing programs stages the t wo highest leels of implementation. The key recommendationfor improing performance in this area is for adopting institutions to proide more detailed disclosure onthe purpose and outcomes of their engagement actiities. This could include proiding more informationon climate change policy outcomes that the institution has influenced, or detailing any changes in supplierworking practices resulting from engagement efforts to encourage reduction of carbon emissions.

Section 1.0 and 3.0 of the Principles coer actiities ty pically managed through central teams focused on

climate change and are aligned with other aspects of sustainability and corporate social responsibilityprograms.

01PwCdidnoterifythedatacollectedasitwasoutsidethescopeofworkagreed

levels of imPlementation DesCriPtion

N ot Applic able Institutio n is n ot inoled in the spec ific bu sinessactiity defined by the Principle.

UnderstandingApproaches

Institution is at an early stage of understandingthe issue and determining the best approach to

be taken.TestingApproaches

Institution has deeloped approaches and istesting them across a limited part of theinstitution and/or product/serice range.

ImplementingPrograms

Institution has agreed to an approach and is rollingit out across the releant business areas.

MaturePrograms

Institution has fully implemented the approachand is using results and findings to the adantageof the business, its clients and customers.

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Section 2.0 of the Principles is where the most meaningful aspects of a financial institutions impact onclimate change are addressed, requiring climate change to be factored into day-to-day business actiities,products and serices. There are seeral strong eamples of good and leading practice but oerall moreneeds to be achieed to ensure that the adopting institutions manage the risks and take full adantageof the opportunities in the financial serices sector as climate change considerations become moreimportant for their clients and customers.

more neeDs to Be aChieveD to ensurethat aDoPting institutions managethe risks anD take full aDvantage ofthe oPPortunities in the finanCialserviCes seCtor.

Institutions demonstrate strong progress in the areas of research and insurance/reinsurance(Sections 2.1 and 2.4 of the Principles) where 60% and 50% of commitments respectiely are at themature programs leel. The deelopment of innoatie insurance and reinsurance products hasbeen drien by learning from research actiities and used to commercial adantage products includeSwiss Res catastrophe bonds and Munich Res performance guarantee coer for photooltaic modules.This approach is starting to eole in other domains of financial serices. HSBCs specialist researchteam has supported the deelopment of their Climate Change Inde which tracks the performance ofbusinesses set to be winners in a climate-constrained economy. Standard Chartered Bank and CrditAgricole hae also recognized the business opportunity for low carbon inestment. Standard CharteredBanks Renewable Energy and Finance business has already proided oer $7 billion in capital and CrditAgricoles enture capital fund has $157 million under management for inestment in renewable energy.Continued use of research findings to deelop new and innoatie financial products and serices which

address climate change remains an imperatie for the transition to a low carbon economy. Adoptinginstitutions will need to stay focused in the area of research to guarantee a leadership position in themarketplace.

Project finance (Section 2.7 of the Principles) is the area where least progress is currently documented.This is primarily a disclosure issue, rather than one of management. Most of the banks inoled in projectfinance hae some approaches in place for engaging with project sponsors on projects which generatehigh emissions measured as greater than 100,000 tons of CO

2equialent per annum. Howeer, there

is little discussion of such approaches in the public domain, in particular relating to epectations forenergy efficiency and carbon intensity of new projects, emissions reduction technology required andguidance for inestment decisions where climate change considerations are a crucial part of the process.Institutions should also increase focus on the opportunities for inestment in low carbon technologies.

This is also releant in other areas of corporate and inestment banking, coered by commitmentsoutlined in Sections 2.5 and 2.6 of the Principles.

Deeloping products and serices that support retail customers to address climate change (Section 2.3of the Principles) is another area that is still in the early stages of deelopment. The majority (83%) ofcommitments are still in the testing approaches stage the second leel of implementation. Bankshae had difficulty engaging retail consumers on climate change and are unclear about the types ofproducts that might be attractie to them. Studies indicate consumers are most likely to take actionwhere product offerings are simple and effectie and it is recommended that institutions partner withorganizations that are more closely aligned with carbon issues in consumers minds such as energy oroffset companies to co-launch products and serices that can encourage consumers to reduce energyconsumption and change their behaior. Linking personal finance with addressing climate change is alargely untapped market opportunity for retail banks. Market research on customers and climate changeis needed to gain aluable insight for deeloping attractie and commercially iable products and serices.

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looking aheaDIn addition to the key findings and specific areas for action already noted, there are broader improementsthat can be made by The Climate Group and the adopting institutions. This combined effort will help toenhance the releance of the Principles and the oerall role of the sector in transitioning to a low carboneconomy. While the current adopting institutions are leading the climate change agenda, there are otherfinancial institutions with similar ambitions. The Climate Group and current adopting institutions shouldencourage other financial serices companies to adopt the Principles, enhancing the ultimate role that

the group can hae as a leading force in demonstrating best practice and promoting change. More actieengagement between adopting institutions and other similar stakeholder groups is also important, inparticular the Equator Principles, the United Nations Enironment Programme Finance Initiatie (UNEP FI),ClimateWise and the United Nations Principles for Responsible Inestment (UNPRI), to ensure goals arealigned across the sector.

Adopting institutions generally had difficulty demonstrating the true nature and etent of the engagementthat they undertake with clients (whether corporate clients, consumers or inestors). More clarity abouthow stakeholders are engaged, the topics that are discussed, how frequently this occurs and whatchanges are made as a result would be useful to demonstrate the role the financial sector can play inaddressing climate change.

There are also ways to improe the effectieness of the Principles. An indicatie list of disclosurerequirements has been deeloped to guide adopting institutions in fulfilling their commitments. Thishas been formally agreed for operational issues ( Section 1.0) and reinsurance and insurance (Section 2.4).The Climate Group should lead the deelopment of disclosure requirements for the remainder of thePrinciples in a way that balances pragmatism and ambition. Adopting institutions should also proidemore information on why and how action has been taken, to meet the commitments in the Principles,and present the information that is more accessible for stakeholders. This need not be a stand-alonereport, but could initially take the form of a summary tet bo within the institutions SustainabilityReport or website which directs the reader to the releant information, similar to the approach taken bythe Global Reporting Initiatie.

Finally, there should be a regular reiew of the content of the Principles to ensure they proide goals forthe finance sector that are in line with emerging science and international policy commitments.

inCreasing the numBer of aDoPtinginstitutions will enhanCe the role ofthe grouP as a leaDing forCe inDemonstrating Best PraCtiCe anDPromoting Change.

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Commercial and residential buildings generate 16.5%02 of global greenhouse gasemissions, a result of heating, cooling, lighting and the use of electrical equipment, while14.3%03 of global emissions come from transportation. Financial serices companies canreduce emissions in both of these areas. Being significant employers oer half a millionpeople work for the fie institutions that hae adopted the Principles they can alsohae a positie result in raising awareness and encouraging indiiduals to take action.

SECTION ONE:managing oPerationalemissions

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imPlementingPrograms

maturePrograms

1.0 we have a roBust low CarBon strategy or Position anD aremanaging our oPerational CarBon emissions.

PrinCiPle1.1 We hae issued a strategy or position that indicates how we undertake

our business in a way that reduces the climate and operational carbonimpact of our actiities.

1.2 We hae board leel commitment for the strategy or position and a

named senior eecutie who has responsibility for implementing itacross our organization and for ensuring that decisions taken areconsistent with it. This eecutie has the necessary resources to meetthe commitments contained in our strategy or position.

1.3 We hae measured a significant proportion of our operational GHGemissions using an internationally recognized or equialent domesticstandard and we disclose this information.

1.4 We hae issued clear and challenging, yet achieable, targets formaking reductions in our operational GHG emissions.

1.5 We engage our employees on our commitment to addressingclimate change and support them in playing an actie role in meetingthis commitment.

figure 104: THIS PRINCIPLE IS APPLICABLE TO ALL FIvE ADOPTING INSTITUTIONS.

02WorldGreenhouseGasEmissionsin2005-WorldResourcesInstitute

03WorldGreenhouseGasEmissionsin2005-WorldResourcesInstitute

04SeeAnneIfor aneplanationofpercentagecalculations,andAnneIIIfor afullbreakdownofperformanceacrossthegroup

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ProgressAll adopting institutions hae made significant progress in improing energyefficiency. In some cases actual emissions hae risen, mainly due to growthof the business. All adopting institutions purchase carbon credits in part orin full to offset certain emissions that hae not been reduced through energyefficiency programs and renewable energy procurement.

They hae all deeloped some form of climate change strategy to reduceoperational carbon emissions. For eample Crdit Agricole will integratesustainable construction into new build projects, such as the future LeCredit Lyonnais Head Office that will be constructed to the French standardfor high enironmental quality (HQE), which minimizes energy and water use,and waste. Swiss Re has deeloped efficiency programs, including technicaloperations management, new build efficiency standards and procurementof green energy that has led to a 30% reduction in emission intensity, asagainst 2003.

The institutions all hae board leel commitment to climate change objecties.At Munich Re, the CEO of the reinsurance group is responsible for climate

change risks, while at Standard Chartered Bank oerall responsibility forthe banks sustainability and climate change strategy is guided by theSustainability and Responsibility Committee, which is a Board appointedcommittee and chaired by an Independent Non-Eecutie Director.The adopting institutions are all reporting carbon emissions from electricityuse and fuel consumption. Howeer, there is no standardized approach tocalculating or reporting emissions that are generated along the supply chainor from trael. For eample, HSBC discloses emissions data from businesstrael and from eternal distribution and logistics, while Standard CharteredBank has set a target for CO

2consumption and air trael. Munich Re reports on

emissions from energy consumption and business trael and also calculatescarbon emissions from the water and paper they use, and from the waste

they produce.

The group of adopting institutions has deeloped some innoatie ways toencourage their employees to take action on climate change. Those engagementinitiaties that are most successful include a combination of consultation,capacity building, practical and readily accessible tools for carbon footprintreduction and performance recognition. Standard Chartered Bank deelopedthe My Enironment tool to educate staff on the enironmental impact of theireeryday actiities, and launched Greenstorming, an internal enironmentalsocial networking portal. Crdit Agricole has established an online portalthat actiely encourages and facilitates their car-sharing scheme. Swiss Rehas a program called COYou2 that raises awareness by subsidizing employee

inestments in personal carbon reducing projects. The HSBC Global PeopleSurey found that 70% of employees belieed that they were being actielyencouraged to take part in enironmental and community initiaties.

foCus for aCtionClimate change strategies should be better aligned to business priorities.In particular, institutions should focus on improing articulation of howclimate change-related key performance indicators (KPIs), targets andprograms link to broader strategic goals. This information will enablestakeholders to gain a deeper understanding of the commitment of institutionsto tackling climate change. Inestors are specifically looking for eidence

that climate change informs management and makes up an integral part ofbusiness decision-making across the institution.

Most institutions demonstrate reasonable leels of engagement with employeeson climate change issues but there is eidence that some efforts are theresult of ad hoc approaches, rather than the product of a uniform strategy orprogram for employee engagement. A more cohesie and strategic approachto employee engagement would help ensure that:

All efforts are aligned to the institutions climate change strategy and plan,thereby helping to delier against it;

There is a platform or mechanism for sharing information on what is working

and what is not; and A common set of the most successful initiaties can be rolled out on a largerscale, bringing consistency of approach, but also efficiencies of scale.

Climate Change strategies

shoulD Be Better aligneD toBusiness Priorities.

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Financial serices companies need to understand the financial implications of climatechange risk and opportunities. Some of these risks need to be managed to reduce costs,others can be turned into commercially iable opportunities. A key challenge facingfinancial serices companies is to leerage internal research actiities in deeloping

tailored financial solutions to meet their clients needs across dierse sectors.

SECTION TWO:DeveloPing aPProaChesthat integrate Climate issuesinto Business aCtivities

figure 2: THIS PRINCIPLE IS APPLICABLE TO ALL FIvE ADOPTING INSTITUTIONS.

2.1RESEARCH ACTIvITIES

PrinCiPle2.1.1 We will incorporate climate and carbon issues into our research

actiities and, where releant, will utilize the findings to deelopproducts and serices.

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ProgressAll adopting institutions hae made strong progress in this area; they all makeinformation publicly aailable on a range of climate change issues and theimplications they hae on the economy.

Understanding and quantifying climate risk is crucial for insurance andreinsurance companies. The research teams at Munich Re and Swiss Republish an array of product and sector-specific papers, many of which proideclear links to their underwriting, risk management and hedging strategies.Their approach to ealuating risks and opportunities is a good approach forother companies to consider.

The most sophisticated incorporation of climate and carbon issues is seenwhere there is an eplicit link between research and company reenue. HSBCsClimate Change Centre of Ecellence deeloped a commercially successfulClimate Change Inde which tracks the performance of 300 companiespositioned to take adantage of a low carbon future (see the case study in 2.2for more detail). Clients of HSBCs Climate Change Inde product (e.g. licensees)

are able to deelop funds focused on inesting in the low carbon sector.

Many research actiities inole partnerships with eternal research centers,member associations, non-profit institutions and think tanks. These multi-disciplinary efforts engage broader skill sets and epertise to produce highquality research that successfully contributes to the raising of generalawareness. Calyon, Crdit Agricoles Corporate Inestment and Banking arm,has partnered with Paris Dauphine Uniersity to research the neus betweensustainable deelopment, climate change and finance. The aim is to deelopinnoatie client solutions by inoling both academic and finance specialists.In 2008, Munich Re started a partnership with the London School of Economicsthat focuses on the economic impacts of climate change with respect to all

aspects of the insurance industry.

Innoatie, sector-specific research has focused not only on climate changeimpacts, but also on related issues of water and human health. For eample,Swiss Re and Standard Chartered Bank collaborated in a joint working groupthat included the Global Enironment Facility, McKinsey and the RockefellerFoundation. They produced a study on The Economics of Climate Adaptationwith the aim of proiding the necessary tools for local decision-makersto deelop climate adaptation strategies to make their societies moreeconomically resilient in the face of climate change (see the case study).

foCus for aCtionAlthough there is a considerable amount of sophisticated research being doneit is crucial that it is used to deelop p roducts and serices that generatereenue for the institution. Some departments hae a financial incentie tointroduce new products that facilitate low carbon deelopment and this is one

way to encourage direct links between research actiities and core operations.The group of adopting institutions currently does a good job of proidinginformation on research actiities, but there needs to be a clearer eplanation ofhow research dries reenue and product deelopment, and finally howclimate change research is incorporated into inestment decisions. This isimportant so that stakeholders can appreciate the releance of the researchthat is being done and how it helps the company to mit igate risks and takeadantage of the opportunities presented by climate change. This could beachieed by eplaining the process by which research has led to reenue andproduct deelopment, and/or the additional (commercial and other) benefitsgenerated from a specific research initiatie.

researCh finDings shoulD

generate new ProDuCts anDserviCes.

Case stuDy

Climate researCh a funDamental strategy to Business suCCessMunich Re and Swiss Re stand out in terms of the breadth, depth and quality ofclimate research they hae produced. Since 1970, 36 of the largest 40 insurancelosses were due to weather-related eents. Both organizations thereforesee the effects of climate change as deeply influencing their core businessof reinsuring natural catastrophes; each has pioneered the field ofclimate research.

Munich Re established a Geo Risks Research Centre as early as 1974. Today theCentre is instrumental in managing natural hazard risk, with specific attentionto the application of increasingly sophisticated natural catastrophe riskmodels. Climate change is a strategic topic for Munich Re, which follows an

holistic, strategic approach that includes risk management, assetmanagement and business deelopment in new markets and products.Collaboration with arious scientific institutes such as the London School ofEconomics underlines these research actiities.

Swiss Re has undertaken similar groundbreaking research, aiming to deepenthe organizations knowledge of climate change risks, including thequantification of risks, and using this knowledge to feed into products andserices. In 2009, Swiss Re, together with Standard Chartered Bank and aspart of The Economics of Climate Adaptation Working Group, issued a reportentitled Shaping Climate Resilient Deelopment. The Report presents amethodology which determines the risks of climate change impacts oneconomies, applying its model to eight case studies and identifyingcost-effectie adaptation measures.

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PrinCiPle2.2.1 We will enable our analysts to incorporate carbon and climate

risks and opportunities into their research and inestment decisions

where releant.

2.2.2 We will engage our clients to understand the carbon and climate changerisks and opportunities releant to them and we will deelop productsand serices that support them in managing those risks and eploitingthose opportunities.

2.2.3 Where consistent with our fiduciary responsibilities, we will engagewith the companies our clients inest in to understand how they areminimizing the risks and maimizing the opportunities presented byclimate change and climate policy. We will also encourage thesecompanies to improe their goernance and disclosure of climate risks

and opportunities.

Understanding how enironmental and social impacts should be taken into account byfinancial serices companies is an area of much debate and actiity. The fundamental

challenge is the lack of financial alue placed on many of these effects. Regulation, taationand other mechanisms are sometimes applied with positie effect, but generally, it is atthe discretion of inestors to decide whether their financial returns outweigh potentialenironmental or social consequences.

Socially responsible inestment (SRI) has led the way in demonstrating howenironmental, social and corporate goernance (ESG) information, including thatrelated to climate change, can be integrated into mainstream inestment decisions.

There has also been a notable shift to products and serices that focus on theopportunities presented by climate change (rather than mitigating risks). Thesedeelopments signal that the asset management sector is responding to the climatechange challenge. The sector can proide key leers for reallocating capital flows tosupport the transition to a low carbon economy.

figure 3: THIS PRINCIPLE IS APPLICABLE TO CRDIT AGRICOLE, HSBC,MUNICH RE AND SWISS RE, BUT THIS FIGURE ONLY INCLUDES DATA FROM CRDITAGRICOLE AND HSBC. COMPARISON BETWEEN BANKS AND REINSURANCE

COMPANIES WAS NOT MEANINGFUL BECAUSE OF THE DIFFERENT PURPOSES OFASSET MANAGEMENT WITHIN THOSE INSTITUTIONS. NEvERTHELESS, THE FINDINGSBELOW MAKE REFERENCE TO ACTION TAKEN BY ALL FOUR INSTITUTIONS.

2.2 asset ManageMent

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ProgressSpecialist teams proide detailed information on enironmental and socialrisks and opportunities associated with inestments, but it is unclear howmany trained analysts are aailable to assess climate risks and opportunities.HSBC proides all analysts and portfolio managers with ESG awarenesstraining that includes climate change issues. Crdit Agricole has establishedan internal tool that proides all managers with ESG ratings of companies orcountries. These carry equal importance to the recommendations made b yfinancial and credit analysts and thereby facilitate informed decision-making.

Institutions hae introduced good eamples of tailored products for clients.They proide arious eamples of engagement and of collaboratie initiatiesthat focus on inesting for a low carbon economy. Crdit Agricole and HSBChae established products that relate specifically to climate change (see thecase studies below). Both are also members of the Institutional InestorsGroup on Climate Change (IIGCC), which includes both asset managers andinstitutional inestors. Participation in such collaboratie initiaties helpsthe interchange between asset managers and their clients. In some casesthese initiaties proide opportunities to engage directly with the inesteecompanies; the Carbon Disclosure Project is a leading eample of such aninitiatie. Munich Re, Swiss Re, Crdit Agricole and HSBC are signatories tothe Principles for Responsible Inestment (UNPRI). Additionally, HSBC and

Crdit Agricole Chereu are members of the European Social InestmentForum (EUROSIF). HSBC is also a member of the Association for Sustainableand Responsible Inestment in Asia (ASrIA).

Some institutions proide guidance to fund managers and analysts thatoutlines the key climate change issues for different sectors. This enables themto hae more focused discussions with clients that can inform inestmentdecisions. HSBC has produced sector-specific guidelines to support dialoguewith company management on how to better address the climate change(and broader ESG) risks and opportunities which they face. In etreme cases,oting rights are used to epress a position, or the decision is taken to reduceor diest its stake in the business. HSBC encourages clients to moe towardsbest practice by making specific reference t o the disclosure and reduction ofemissions to combat climate change and minimize their liabilities.

foCus for aCtionClimate change considerations should be more actiely mainstreamed acrossall inestments ( i.e. beyond equities and SRI). For eample, reinsuranceinstitutions inest a large portion of their portfolio in goernment bonds.Options for low carbon or green bonds may offer an acceptable alternatieas they offer guaranteed returns but also support low carbon inestment. Thisobseration has also been noted in the 2009 ClimateWise Reiew.05 Further,

een though it is more challenging to apply the Principles to assets thatare managed using a passie rather than an actie inestment strategy, itis neertheless worth considering how this could still incorporate climatechange considerations. There are a growing number of indices in the marketthat focus on climate change opportunities precisely to meet such a need.In addition to the action needed, it is also recommended that more specificguidance on implementation of, and disclosure pursuant to, this Principlebe deeloped.

In spite of t he dialogue occurring through inestor initiaties and in industryforums, more can be done to engage with inestors directly to help raise theirawareness and understanding of climate risks and opportunities, and disclosing

this actiity in the public domain. Inestors are critical stakeholders for driingprogress in the asset management sector. An improed understanding of therisks and opportunities of climate change, and the implications for theirinestments, will trigger inestors to seek more (and better) products, sericesand adice from their asset managers. This in turn will drie asset managers to:(i) incorporate climate considerations into mainstream products and serices,(ii) deelop tailored, theme-based inestment products and serices, and(iii) broaden and deepen their engagement actiities with inestee companies.

Institutions need more engagement with policymakers to incentiize andsupport inestment behaiors which factor in the material implications ofclimate change. Clearer guidance about regulation, taes, and financialincenties has the potential to play a major role in changing inestment behaior.

The Climate Group, as Secretariat, could facilitate more actie engagementbetween the adopting institutions and collaboratie inestor groups.Additionally, it could look to ensure that the requirements of the ClimatePrinciples are consistent with other key initiaties, in particular the UNPRI,giing specific attention to deeloping a common roadmap for adoptinginstitutions to deelop and disclose best practices. This will ensure that parallelinitiaties are aligned and moing towards a common outcome.

Case stuDythe hsBC gloBal Climate Change BenChmark inDexThis Inde, launched in 2007, lists companies focused on deeloping solutions

to combat climate change across many business sectors. It comprises fourinestable global sub-indices HSBC Climate Change Inde, HSBC Low CarbonEnergy Production Inde, HSBC Energy Efficiency & Energy Management Inde,and HSBC Water, Waste & Pollution Control Inde. HSBC has also launched aspecific climate change fund (HSBC GIF Climate Change Fund) that inests in50-70 leading stocks and is targeted at both institutional and retail inestors.Recent research underpinning indices has concluded that global reenuesfrom the low carbon economy amount to approimately $530 billion (HSBCClimate Change September Annual Inde Reiew, September 2009).CrDit agriCole asset management grouP (Caam grouP)The CAAM Group launched a thematic sub-fund in 2009, CAAM Funds CleanPlanet, which consists of approimately 700 shareholdings in the cleantechnologies sector which gies inestors the opportunity to supportcompanies working in renewable energy, energy efficiency and wastetreatment. It aims to achiee long-term capital growth by inesting two-thirdsof its assets in the shares of companies that contribute to enironmentalprotection through the deelopment of technologies that help to reducecarbon emissions or to use energy and resources more efficiently.

investors areCritiCalstakeholDersfor DrivingProgress.

05ClimateWise: the 2009 reiew

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ProgressRetail products that enable consumers to reduce their carbon footprints andto prepare for future impacts from climate change are still in their infancywithin the finance sector, although significant progress has been made in otherareas of retail. Retailers offering food, healthcare, clothing, electronic

goods, holidays and cars are becoming conscious of the carbon footprint ofmanufacturing; as a result the market for green products is growing.

There is limited research about consumer willingness to address climatechange through their choice of financial products. A notable eample ofresearch in this area which does stand out, howeer, is the HSBC ClimateConfidence Monitor, the third installment of which was released in 2009. TheMonitor sureyed 12,000 people around the world to understand consumerattitudes to arious aspects of climate change; including leels of concern,commitment to action, and optimism for the future (see the tet bo below).

Adopting institutions are in the early stages of engaging with retail customerson climate change. Crdit Agricole has published an educational climate

change guidebook that includes the types of products and serices that canhelp customers to reduce their climate f ootprint. Standard Chartered Bankhas deeloped its own carbon calculator and made it aailable online for useby the public. Gien the large customer-base of each adopting institutionthere is an opportunity to play a role in influencing, supporting and adisingindiiduals on carbon footprint reduction. This can yield business benefitsthrough deepening relationships, improing loyalty and strengthening brand.

Compared to other consumer products, there are few retail banking productsand serices currently aailable that help customers manage their impacton climate change. Eamples include Crdit Agricoles Prt dconomiesdnergie (PEE), an energy conseration loan that proides preferential rates

for carrying out energy-saing projects in old residential properties. StandardChartered Banks paperless campaign, which encourages customers to signup to paperless accounts has reached 20% of customers in target markets equialent to timber saings of nearly 450 trees per year.

foCus on aCtionAdopting institutions should engage more directly with retail customers onclimate change through a range of actiities including climate change forums,customer sureys and customer outreach programs. Such engagement shouldbe two-way, with the institution proiding information on climate change,the potential impact it has on customers, and the specific actiities thatcustomers can undertake to reduce their impact on climate change. In return,customers can proide aluable input for product deelopment.

Consumer studies indicate that consumers are most likely to take action whereproduct offerings are simple and effectie, and that trust, brand and releance are

important prerequisites for action. There are still only a handful of financial productsfor consumers which proide an opportunity to reduce carbon emissions, and fewer stillthat are commercially attractie.

PrinCiPle2.3.1 We will undertake research to understand:

i. The potential impacts of climate change and climate change policyfor our customers;

ii. The willingness of our customers to address these impacts;

iii. The products and serices that customers need to addressthese impacts and the barriers to addressing them;i. The approaches needed to raise awareness of how our customers

manage their GHG emissions and reduce their carbon footprint.

2.3.2 Based on our understanding of our customers, we will deelopproducts, serices and communication and engagement strategiesto enable them to address potential impacts and reduce theircarbon footprint.

2.3 retail Banking

figure 4: THIS PRINCIPLE IS APPLICABLE TO CRDIT AGRICOLE, HSBC ANDSTANDARD CHARTERED BANK.

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Demand from retail customers for banks to p roide them with climate changeinformation has been limited and therefore financial institutions may considerintegrating climate and wider sustainability issues into their brands as a meansfor attracting customers. It may be that customers do not iew their personalfinances as a key route to reducing their impact on the climate and will beunlikely to choose a retail product or serice purely on its climate merits.

Howeer, they may be attracted to a financial institution with a strong reputationand credible track record of managing its impact on climate change een ifthey do not buy climate change related products.

The challenge is to deelop innoatie finance products that specifically enableenergy reduction, low carbon energy generation and changing behaiors.Beyond retail inestment and insurance products, financial institutions couldconsider how to collaborate with energy companies or the manufacturers ofgreen line products and link these products and serices with financing. Onesuch eample would be offering consumer products to support financing of

household solar panels and other types of energy efficiency refurbishments.

text BoxCustomer views on Climate ChangeThe third installment of HSBCs Climate Confidence Monitor (CCM) has beenrecently released. It is a surey of 12,000 customers across 12 key HSBCmarkets, 6 deeloped and 6 emerging, and highlights seeral trends in publicattitudes towards climate change:

Public concern about climate change remains high but has been somewhatoershadowed by the global economic crisis and pandemic flu.

Leels of concern oer climate change are higher in emerging economies

than in deeloped ones. This trend may be drien by the epectations thatdeeloping countries will be more seerely impacted by climate change. An increasing proportion of respondents state that they are making a

significant effort to reduce their impact on climate change. Oerall optimism that climate change will be managed successfully

has fallen.

There may be an opportunity for financial institutions, particularly thosewith operations in emerging markets, to take adantage of current concernsaround climate change. They could either deelop climate change productsand serices that are informed by customer engagement, or they could widelyintegrate sustainability and climate issues into their brand offering.

the Challenge is to DeveloP

innovative finanCe ProDuCtsthat sPeCifiCally enaBleenergy reDuCtion, lowCarBon energy generationanD Changing Behaviors.

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ProgressAs the core business of reinsurance companies is to research and managerisk, they hae naturally led progress in this area.

Tools deeloped by the adopting institutions help to identify emerging climaterisks and factor these into transactions. Some of the best eamples includeSwiss Res Emerging Risk Management Framework, which facilitates thesystematic assessment of emerging risks that are inherently challenging toquantify. Another is Munich Res Globe of Natural Hazards which, based onetensie eperience, illustrates the global distribution of natural disasters

(see the case study below).

Climate change has proided a need for new products and serices to tackleemerging risks associated with more frequent and seere weather andchanging temperature patterns. To this end, Swiss Re proides naturalcatastrophe coer and catastrophe bonds. Munich Re Agros SystemAgroapproach (through a public-priate partnership framework) goes beyond asingle yield coerage product. The system ensures that the entire agriculturalalue chain, starting with the grower and including agribusiness andagri-finance can sustainably withstand losses in the eent of catastrophes.Similarly, Crdit Agricole has deeloped financing and risk managementsolutions to enable farmers to surie major weather impacts.

Many insurance products and serices hae the potential to support thetransition to a low carbon economy. Munich Re proides traditional, but alsoinnoatie and tailor-made solutions for renewable energy technologies(e.g. performance guarantee coer for photooltaic modules) as well as theKyoto Multi-Risk Policy which targets clean deelopment mechanism (CDM)projects. Additionally, a new global renewable energy insurance facility hasbeen established in cooperation with other organizations06 that undertakethese types of projects. Swiss Re also proides reinsurance coer forclean-energy infrastructure such as solar arrays and wind farms. CrditAgricole has also introduced insurance coer for solar panels. The proisionof such insurance will support the growth of renewable technologies.

Calculating the cost implications of eents that hae a detrimental effect is at the heartof the insurance industry. Decades of proiding insurance against etreme weather

eents and changing weather patterns has meant insurance companies hae a wealthof knowledge and eperience when it comes to understanding how we may be affectedby climate change and the cost implications of this. Following the etreme weathereents of 2004 that hit the United States and Japan leading to a record $46 billion inproperty damage the impetus to understand the financial costs of climate changeimpacts has increased dramatically. Not only does the insurance industry hae animportant role to play in disseminating information, it also has a critical opportunity fordeeloping new and aried products that make managing these risks affordable.

PrinCiPle2.4.1 We will deelop the necessary knowledge, skills and tools to assess

carbon and climate risks associated with our transactions and thefinancial implications they hae for our business.

2.4.2 We will deelop risk assessment techniques to assist our clients tounderstand better and respond to climate change.

2.4.3 We will deelop insurance products and serices that encourage ourcustomers to reduce their carbon and climate risks, assist the

deelopment and adoption of GHG mitigation technologies andstrategies and take adantage of the carbon market.

2.4 insurance anD reinsurance

figure 5: THIS PRINCIPLE IS APPLICABLE TO CRDIT AGRICOLE, HSBC,MUNICH RE AND SWISS RE.

06www.insurance4renewables.com

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foCus for aCtionGien the difference in their business models compared to other memberinstitutions, it is not surprising that Munich Re and Swiss Re hae some ofthe most adanced risk assessment methodologies. Where appropriate,banks that offer insurance products and serices as part of their widerbusiness should build on similar risk assessment methodologies to engagewith insurance clients and consumers, and help them to better understandand respond to climate change.

Institutions should continue to deelop innoatie insurance products and

serices in response to climate change, possibly including carbon marketinsurance and forestry insurance.

Case stuDymuniCh re gloBe of natural hazarDs anD worlD maP ofnatural hazarDsTo make natural hazard risks more transparent and to share more than 35years of Munich Res scientific data and findings with clients, the interactieGlobe of Natural Hazards DvD and World Map of Natural Hazards hae beendeeloped. The Natural Hazards DvD illustrates natural hazards and climateeffects, includes hazard maps, satellite images, and background informationabout natural hazards, climate change and insurance. The World Map ofNatural Hazards shows the distribution of climatological, meteorological and

hydrological hazards and highlights the most significant eents. The onlineapplication NATHAN (based on the DvD) offers clients additional insurance-releant information such as market statistics, insured losses and insurancezones (CRESTA) as well as serices for portfolio analyses (Geospatial Serices).swiss re natural CatastroPhe insuranCe ProDuCtsSwiss Re proides insurance coer for natural hazards that are influenced byclimate change such as etreme weather eents or changes in aeragetemperature. This includes the innoatie use of alternatie sources of fundingsuch as the capital markets and Insurance Linked Securities (ILS) such asCatBonds. In the last decade, Swiss Re Capital Markets has played a key role instructuring and distributing approimately half of the catastrophe bonds inthe ILS market. As the frequency and seerity of insured eents increase, the

capital market is set to play an increasingly important role in proidingcatastrophe coer.

many insuranCe ProDuCtsanD serviCes have thePotential to suPPort thetransition to a low CarBoneConomy.

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PrinCiPle2.5.1 We will deelop and implement a process to consistently assess the

financial implications of carbon and climate risks releant to our clientsand will train employees to implement this assessment.

2.5.2 We will consider practical ways to assess the carbon and climate risks ofour lending and inestment actiities. Where a feasible and releantmethodology can be found, we will deelop and implement this approach.

2.5.3We will engage our clients to understand the carbon and climate risks

and opportunities associated with their business. This might includeencouraging them to deelop a strategy to manage these risks; tomeasure and disclose their carbon footprint; and, to set meaningfultargets to reduce carbon emissions.

2.5.4 We will deelop financing solutions to facilitate inestment in low carbontechnologies and GHG reduction projects.

finanCial institutionsshoulD Challenge Clients

on Climate Change issues.

The finance sector has a unique enabling role to play in the transition to a low carboneconomy primarily through understanding the risks and opportunities facing clients and

deeloping new products and serices that address these. This may mean supportingclients in the power and energy sector to finance new technology solutions that captureand reduce carbon emissions. Equally important is working with clients to financedeelopment and acceleration of new low carbon technologies across the transport andlogistics, information and communication technologies and utilities sectors. Financialinstitutions can support clients with serices to identify and manage climate risks(e.g. regulatory, market or physical), or in proiding financial solutions to compete innew markets.

2.5 cOrpOrate Banking


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ProgressWhile adopting institutions are addressing climate change in corporate bankingin dierse ways, there are some notable eamples of good performance.

Assessing climate risks and training employees on enironmental and socialrisks in lending is one step that is being taken to ensure that climate changeis taken into account in corporate banking decisions. Adopting institutionsapply social and enironmental risk screens across all corporate and inestmentbanking operations. Transactions identified as sensitie are submitted tospecialist functions that proide recommendations on how to proceed.Standard Chartered Bank has deeloped an oerarching climate changeposition statement that is applicable to all financing decisions. They alsoproide employee training on enironmental and social risk (including

climate change risk) as part of their core curriculum for credit officers andrelationship managers in Wholesale Banking and small and mediumenterprise (SME) banking, ensuring that sustainable lending practices arecore to their financing decisions.

There is some progress in deeloping innoatie tools to assess loan portfolioeposure to carbon and climate risks, but the approaches taken are notuniform and some of the adopting institutions are still in the early stages ofdeeloping their methodologies. Standard Chartered Bank has undertaken arisk assessment of its loan portfolio to identify climate change risks from thesectors and geographic areas where it has eposure. It is less clear, though,how the results of these assessments feed into oerall inestment

decision-making. HSBC has an internal credit approal system which indicateswhether a client is compliant, near compliant or not compliant with its policies.

Eamples of institutions that engage proactiely with clients to understandwhat support they need and how climate change risks and opportunities canbe managed are patchy but do eist. HSBC and Standard Chartered Bank offeradisory serices on sustainability issues to their clients and seek to ensurethat they operate in accordance with bank policies. Where a client cannotmeet the standards a credible, time-bound plan is set to achiee compliance.Standard Chartered Bank has also introduced an Enironmental and SocialRisk Assessment Tool (ESRAT) for its relationship managers, of which onecomponent requires them to encourage clients to implement a climate changestrategy and to monitor and disclose carbon emissions.

While these eamples are good first steps, the sector as a whole couldimproe its record of challenging clients on issues such as climate change.The opportunities presented by climate change are ery significant for somesectors and clients, and therefore the sector could be more proactie inadising in this capacity and supporting the transition to a low carbon economy.

foCus for aCtion

Een in the absence of certainty around climate regulations and policy, banksshould continue to be proactie in facilitating the transition to a low carboneconomy by dedicating greater amounts of finance for green lines. Throughgreater financing opportunities, banks can further support deelopmentaround renewable energy (including hydro, wind, solar and bio-mass), waterand wastewater management, and sustainable agriculture. The InternationalEnergy Agency estimates that $45 trillion in inestment will be required tocut GHG emissions in half by 2050, making energy and related sub-sectors asignificant commercial opportunity and priority.

Institutions should build on their commitment to engage with clients toensure that clients deelop a strategy to measure, manage and disclose their

carbon footprint. This may be through a range of mechanisms such as loancoenants, client eents and management workshops, or collaboratieinitiaties such as joint research projects. A shift of gear on client engagementcan help to improe client performance, deepen relationships with clientsand decrease the risk for t he adopting institution.

With regard to the institutions own inestment actiities and the incorporationof climate risk, greater disclosure is needed around the methodologies used andthe outcomes that result. This could b e in the form of types of risk ealuated,the timeframe applied, and the types of criteria used in undertaking a cost/benefitassessment to decide whether to carry through with an inestment.

Finally, institutions should gie consideration to discouraging high carbon

lending. This could be achieed by incorporating releant information intocapital allocation models as is currently done for other risks to rebalanceportfolios towards low carbon eposure. Further, oer time, institutionsshould seek to make their own climate change policies consistent withinternational agreements and national legislation.Case stuDystanDarD ChartereD Bank renewaBle energy anDenvironmental finanCeStandard Chartered Bank deeloped a cornerstone business strategy,epanding its renewable energy project finance arm into a Renewable Energyand Enironmental Finance (REEF) business in 2008. This repositioning

enabled it to place Wholesale Banking products across the whole alue chainfrom technology proiders, asset deelopers, operators and inestors intothe renewable and enironmental sector. Standard Chartered Banks REEFbusiness has already financed oer $7 billion in capital across all segmentsof the renewable energy and enironmental finance market, including wind,solar, biofuels, waste and water. At the international leel, as part of theClinton Global Initiatie, Standard Chartered Bank has committed to finance$810 billion of renewable energy and clean technology projects by 2012;haing financed $3.3 billion to date in projects in Asia, Africa, the Middle Eastand Europe, abating approimately 2 million tonnes of carbon emissionsper year. In 2008, Standard Chartered Bank also partnered with the AsianDeelopment Bank to support energy-efficient inestment projectsacross China.

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PrinCiPle2.6.1 Corporate Adisory We will deelop the knowledge, tools and skills

necessary to adise our clients of the potential financial implicationsof carbon and climate risks and opportunities associated with theirbusiness transactions.

2.6.2 Structured Lending & venture Capital We will deelop iable financingsolutions to facilitate inestment in low carbon technologies and GHGreduction projects.

2.6.3 Trading We will deelop epertise to support emissions trading,weather deriaties, renewable energy credits and other climaterelated commodities, and look for ways to play a constructie role inpromoting these.

Seeral areas of banking are included in this Section of the Principles. Each proidesthe finance sector with a unique opportunity to proide innoatie ways to support

low carbon growth. The size of this new market is large; estimates by Morgan Stanleysuggest that the global annual reenue from clean energy-related actiities could be asmuch as $500 billion in 2020, increasing to $1 trillion by 2030 07.

in sPite of CarBonregulation unCertainty, theCarBon market Continues to

offer oPPortunities.

2.6 investMent Banking anD Markets

07HSBC Global Inestment Funds - Climate Change: Turning climate change from a crisis into an inestment opportunity 2008

figure 7: THIS PRINCIPLE IS APPLICABLE TO CRDIT AGRICOLE AND HSBC.SECTIONS 2.6.1 AND 2.6.3 ARE APPLICABLE TO STANDARD CHARTERED BANK ANDARE INCLUDED IN THIS FIGURE.

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ProgressInstitutions hae deeloped some approaches to deal with corporate adisoryfunctions and climate change, though more work is needed to demonstratethis link. While adopting institutions use internal tools and processes aswell as detailed research, it is less clear how clients are adised on climaterisks and opportunities. The current leel of implementation implies that

corporate adisory serices may inole climate change-related discussionsand adice from time to time, but these appear to be ad hoc and therefore it isdifficult to capture the totality of such adice (in terms of frequency, nature,outcomes and so forth).

Opportunities for the proision of structured lending and enture capitalare beginning to emerge. HSBC and Standard Chartered Bank are eploring arange of opportunities for equity financing in renewable and infrastructureprojects, while also considering stakes in technology companies. SimilarlyCrdit Agricole has established a enture capital fund for inestment inrenewables (see the case study below).

Some adopting institutions are inoled in arious types of carbon tradingand related carbon market actiities. Standard Chartered Bank operates acarbon trading desk that gie clients access to the EU-ETS, CDM, and oluntarymarkets. Crdit Agricole has deeloped a carbon trading offering which istraded by Calyon.

foCus for aCtionIn the contet of eer increasing regulatory pressure, alongside greater focuson low carbon technology solutions, adopting institutions should considerhow they can incorporate climate risks and opportunities into corporateadisory roles for clients as they become more material and releant. To captureopportunities, there is need for increased enture capital, priate equity and

project infrastructure financing to support low carbon technology businessesand emissions reduction projects.

In spite of carbon regulation uncertainty, the carbon market continues tooffer opportunities. Institutions can continue to play a proactie role in theconstructie deelopment of these new markets, giing attention to therelated benefits not just in deeloped but also across emerging markets,where climate change will hae far more seere implications.

Case stuDyPrivate equity investment in renewaBlesCrdit Agricole Priate Equity launched the first institutional enture capital

fund (FCPR) in 2006 (Capenergie) entirely dedicated to renewable energies(including wind energy, biomass, hydroelectricity, solar thermal andphotooltaic power, geothermal energy and biofuels) and operatinginfrastructures for the sector (including for wind energy and biomass). Sinceits launch, the fund has inested in 12 projects (60% of the aforementionedcapital) in wind energy (60%), solar energy (20%) and hydroelectricity andbiomass (20%). The fund currently has $157 million under management.

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PrinCiPlefor ProjeCts that release or are likely to release 100,000 tons Co2equivalent Per year (aggregate emissions of DireCt sourCes anDinDireCt sourCes assoCiateD with PurChaseD eleCtriCity for ownConsumPtion), exCePt where justifieD Deviation is ProviDeD, wewill request the Client to:2.7.1 Seek opportunities to reduce project-related GHG emissions in a manner

appropriate to the nature and scale of project operations and impacts.

2.7.2 Quantify and disclose direct GHG emissions and indirect GHG emissionsassociated with the off-site production of power used by the project.

2.7.3 Monitor and report GHG emissions annually in accordance with

internationally recognized methodologies.

2.7.4 Ealuate technically and financially feasible options to reduce or offsetproject-related GHG emissions during the design and operation ofthe project.

Banks often work together in syndicates to proide finance for major infrastructureprojects such as power stations, gas pipelines and mines. The Equator Principles proide

a framework for how banks take enironmental and social considerations into accountin their project finance actiities. The Climate Principles look specifically at therequirements for projects that hae a major impact on climate change those that emitmore than 100,000 tons of CO2 equialent per year. To preent dangerous climate change,it is crucial to ensure that these utilize the most effectie technologies to minimize andcapture emissions.

2.7 prOject Finance


it is vital that theinstitutions work Closelytogether to faCilitate a

Common Position anD aPositive outCome.

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ProgressThe adopting institutions hae also adopted the Equator Principles, andtherefore hae access to greenhouse gas emissions information on projects

they finance. Howeer, whilst these institutions are engaging with projectsponsors on climate change, there is little information in the public domainregarding how. Specifically, there is limited information regarding how banksare systematically identifying projects that are likely to release 100,000 tonsof CO

2equialent per year. It is clear from the interiews conducted as part

of the Progress Reiew that some of the institutions are in the process ofputting measures into place to disclose this information, but it is still at anearly stage.

Based on the information aailable in the public domain it is difficult toascertain how banks are engaging with their clients to ensure projects haeemissions reduction plans; how their emissions are calculated, monitored

and disclosed; and how projects are proided with the necessary supportto mitigate emissions produced during their lifetime. Lack of informationon such issues is in part attributable to the challenge of maintaining clientconfidentiality.

foCus for aCtionAdopting institutions should eplore how best to monitor and disclose onprojects that release more than 100,000 tons of CO

2equialent per year and how

these requirements complement eisting policies and processes aroundenironmental and social impact assessments. Such information is readilyaailable and should be incorporated into project management proceduresper the Equator Principles.

Institutions need to make more information publicly aailable to eplain howthey are engaging with clients inoled in carbon-intensie projects, whilepresering client confidentiality. Greater transparency will improe stakeholderunderstanding of the challenges being faced and the solutions beingimplemented to resole them.

Recognizing this is a challenging task, it is ital that the institutions work

together closely and collaborate beyond the Climate Principles, for eamplewith the Equator Principles community and t he International FinanceCorporation (IFC).

Such collaboration is likely to be a necessary precursor to progress inthis area. To demonstrate improement before the net Reiew, adoptinginstitutions should be focused on:(i) Standards deelopment, alongside the IFC for eample;(ii) Defining and agreeing best practice processes; and(iii) Driing uniformity on reporting.

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ProgressThere has been good progress in t his area and significant progress onsupporting the deelopment of climate change policy and regulation.

Engagement with customers, suppliers and staff on climate change isprogressing, though more could be done. A good eample of engaging employeesis HSBCs Climate Champions program which proided 380 employees withtwo weeks of training on climate change and sustainability last year. A further3,000 took part in one-day climate change field trips. In contrast to staffengagement, howeer, detailed information on engagement and educational

initiaties with customers, clients, and the wider public is less readily aailable.

Information on supplier engagement to reduce greenhouse gas emissions ismied. A strong eample is Standard Chartered Bankss Know Your SupplierPolicy, which enables it to assess the potential risk of suppliers who may bedamaging the enironment, which includes a reference to climate change.Crdit Agricoles supplier rating program includes lists of enironmentallyand socially responsible suppliers and risk profiles for different procurementareas to aid decision-making.

The adopting institutions hae all made, and are continuing to make, significantefforts to support the adoption of climate change regulation and policy

through mechanisms such as participation in industry initiaties and strategicpartnerships. Swiss Re is a partner of the Global Risk Network of the WorldEconomic Forum, and Munich Re initiated the Munich Climate I nsuranceInitiatie (MCII) and the Desertec Industrial Initiatie (DII GmbH). StandardChartered Bank is a member of the UK Corporate Leaders Group on ClimateChange and participates in the Catalyst Program of the ClimateWorksFoundation which undertakes goernment adocacy work on climate change.All eamples illustrate strong adocacy partnerships that can further policydialogue and leadership.

foCus for aCtionAdopting institutions should ensure they are proiding information on climatechange and adice on carbon footprint reduction to each of their keystakeholder groups customers, suppliers, employees and shareholders.Adopting institutions should also be clear on how they can actiely supportstakeholders in their efforts to understand and reduce carbon. Engagementactiities should be tailored to the needs and interests of each stakeholdergroup to ensure releance and maimize impact.

3.0 we will engage others to suPPort the growth of a lowCarBon eConomy, where Consistent with our CorPoratePoliCies on PuBliC engagement.

PrinCiPle3.1 We will disseminate information through our network of customers,

suppliers, staff and other stakeholders to raise awareness aboutclimate change and the opportunities for reducing GHG emissions.

3.2 We will engage our significant suppliers on climate change issues and

work with them to enable us to reduce GHG emissions throughout oursupply chain.

3.3 We recognize that tackling climate change cannot be soled througholuntary action alone and we support the adoption of effectie andefficient regulation and policy to reduce GHG emissions. Such supportmay include engaging policy makers and/or key stakeholders on anindiidual basis or through releant industry and multi-stakeholderinitiaties.

figure 9: this principle is applicaBle tO all Five aDOpting institutiOns.

SECTION THREE:BroaDer engagement withstakeholDers

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One key set of stakeholders are other financial institutions. As Secretariat tothe Climate Principles, The Climate Group could eplore how it can supportbroader outreach to other financial institutions to encourage them to adoptthe Climate Principles. It is also important to recognize that the currentadopting institutions hae a role to play in this regard. This will grow the strengthof the group of adopting institutions through fostering knowledge-sharingacross a larger number of institutions and help the sector to moe forwardon the climate change agenda more quickly and more uniformly.

More broadly, the group can further support continuing efforts bygoernments and the UNFCCC in reaching an urgent and meaningful globalagreement to commit to binding greenhouse gas emissions reductions.

The financial institutions proide some information on how climate changeconcerns are integrated into their procurement policies and supplierselection processes. Howeer, there is an opportunity to moe towards morein-depth supplier engagement and support for key suppliers in their effortsto manage their carbon footprint.

the aDoPting institutionshave all maDe, anD are

Continuing to make,signifiCant efforts tosuPPort the aDoPtion

of Climate Changeregulation anD PoliCy.

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The process undertaken as part of the progress Reiew is described below.

sourCes of information(i) Company-issued information in the public domain: at present, adoptinginstitutions do not communicate progress against the Principles througha standalone report. We therefore assessed implementation based uponinformation issued by the adopting institution, which was found within the

public domain. Sources included:

Responses to Carbon Disclosure Project requests; Company Sustainability Reports; and Company websites

(ii) Interiews: Following this initial data reiew, indiidual interiews werealso conducted with each institution to address any information gaps, toensure we had not misinterpreted information and to clarify remainingquestions. On occasion, interiews were conducted with seeral indiidualsfrom one institution to ensure information proided for each of the Principleswas as comprehensie and accurate as possible. Interiews proided an

opportunity for the group of adopting institutions to share informationregarding forthcoming disclosure within the current ealuation year, thoughwhich was not yet publicly aailable.

It is important to note that an institutions leel of achieement was dependenton eidence in the public domain. As a result, if we were made aware of otheractiities underway but not discussed in the public domain, our assessmentdid not eplicitly reference t hese. This approach was made clear to adoptinginstitutions before analysis was conducted.

Definition on levels of imPlementationIn reiewing institutions actiity against the Principles, we based ourassessment of progress upon four distinct implementation leels, as set outin the table below. These leels, and their descriptions, were agreed with thegroup of adopting institutions in adance.

It is important to note that progress against the Principles has been assessedon a Section-by-Section basis and presented for the whole group of adoptinginstitutions. Summary graphs are presented in the main part. A full oeriewof results for each Section of the Principles is presented in Anne III.

The content of each tet bo was agreed in adance with the releantadopting institution.

sCoringIn assessing performance, each adopting institution was ealuated accordingto the four leels of implementation. Group performance as a whole wascalculated by summing the number of institutions at each leel relatie tothe total number of institutions within the gien actiity (see Anne III for abreakdown of numbers and percentages).

levels of imPlementation DesCriPtion

No t Applicable Institutio n is n ot in o led in the specific businessactiity defined by the Principle.

UnderstandingApproaches

Institution is at an early stage of understandingthe issue and determining the best approach tobe taken.

TestingApproaches

Institution has deeloped approaches and istesting them across a limited part of theinstitution and/or product/serice range.

ImplementingPrograms

Institution has agreed to an approach and is rollingit out across the releant business areas.

MaturePrograms

Institution has fully implemented the approachand is using results and findings to the adantage

of the business, its clients and customers.

annexes

annex i: METHODOLOGY FOR PRICEWATERHOUSECOOPERS REvIEW

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The Climate Principles proide a uniersal approach to tackling the keyclimate change risks and opportunities facing the finance sector. ThePrinciples are outlined in three S ections:

Section 1.0 proides a list of commitments that refer to an institutionsown carbon footprint. Whilst it is accepted these do not make a significantdifference in the case of financial serices companies, it is still importantthat the adopting institution take charge of its own emissions and ensurethat its employees understand and are engaged in reducing energy use, bothin the office and at home.

Section 2.0 of the Principles outlines commitments across seen corebusiness areas of the finance sector: research; asset management; retailbanking; insurance and reinsurance; corporate banking; inestment bankingand markets, and project finance. In some of these areas, eisting initiatieshelped to inform the Principles (see the diagram below) and measures were

taken to align commitments.

All institutions that adopt the Principles must meet all releant commitmentsin Section 2.0. The primary focus is on building understanding of climatechange issues and the financial implications it has for clients and customersand using this information to deelop new products and serices that can

support a moe to a low carbon economy. Actie engagement with stakeholdersas well as product innoation is needed across each core business area.

Section 3.0 of the Principles outlines the commitment that a financialinstitution makes to engaging and influencing eternal stakeholders includingpolicy makers, peers, suppliers, industry groups and broader society.

Any financial institution can adopt the Climate Principles although it best lendsitself to international, multi-functional financial institutions where all or mostof the commitments are releant. To date, the institutions that hae adoptedthe Principles are Crdit Agricole, HSBC, Munich Re, Standard Chartered Bankand Swiss Re.

annex ii: ABOUT THE CLIMATE PRINCIPLES

seCtion 2.0Core Business

2.2assetmanagement

the PrinCiPlesfor resPonsiBle

investment un Pri

investorstatement on

Climate Change iigCC

equatorPrinCiPles

the CarBonPrinCiPles

2.4insuranCe anDreinsuranCe

2.7ProjeCtfinanCe

Climatewise

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The table below proides a detailed assessment of the leel of im plementation within each specific principle while also highlighting which actiities werenot applicable to certain institutions. This outlines performance of the group of adopting institutions. Each institution has b een proided with a priateassessment of their performance against the group aerage.

annex iii: RESULTS OF REvIEW OF ADOPTING INSTITUTIONS

PrinCiPle unDerstanDingaPProaChes

testingaPProaChes


maturePrograms

notaPPliCaBle

seCtion 1.0

1.1 We hae issued a strategy or position that indicates how weundertake our business in a way that reduces t he climateand operational carbon impact of our actiities.

1.2 We hae board leel commitment for the strategy or positionand a named senior eecutie who has responsibility forimplementing it across our organization and for ensuringthat decisions taken are consistent with it. This eecutie

has the necessary resources to meet the commitmentscontained in our strategy or position.

1.3 We hae measured a significant proportion of our operationalGHG emissions using an internationally recognized or equialentdomestic standard and we disclose this information.

1.4 We hae issued clear and challenging, yet achieable, targetsfor making reductions in our operational GHG emissions.

1.5 We engage our employees on our commitment to addressingclimate change and support them in playing an actie role inmeeting this commitment.

Count (percentage) 0 (0%) 0 (0%) 8 (32%) 17 (68%)

2.2 asset management

2.2.1 We will enable our analysts to incorporate carbon and climaterisks and opportunities into their research and inestmentdecisions where releant.

2.2.2 We will engage our clients to understand the carbon and

climate change risks and opportunities releant to them andwe will deelop products and serices that support them inmanaging those risks and eploiting those opportunities.

2.2.3 Where consistent with our fiduciary responsibilities, wewill engage with the companies our clients inest in tounderstand how they are minimizing the risks andmaimizing the opportunities presented by climate changeand climate policy. We will also encourage these companiesto improe their goernance and disclosure of climate risksand opportunities.


seCtion 2.0

2.1 researCh aCtivities

2.1.1 We will incorporate climate and carbon issues into ourresearch actiities and, where releant, will utilize thefindings to deelop products and serices that benefit ourcustomers and clients.


= Adopting institution

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2.4 insuranCe anD reinsuranCe

2.4.1 We will deelop the necessary knowledge, skills and toolsto assess carbon and climate risks associated with ourtransactions and the financial implications they hae forour business.

2.4.2 We will deelop risk assessment techniques to assist ourclients better understand and respond to climate change.

2.4.3 We will deelop insurance products and serices thatencourage our customers to reduce their carbon and climaterisks, assist the deelopment and adoption of GHG mitigationtechnologies and strategies and take adantage of thecarbon market.



testingaPProaChes


maturePrograms

notaPPliCaBle

2.3 retail Banking

2.3.1 We will undertake research to understand:1) The potential impacts of climate change and climate

change policy for our customers;

2) The willingness of our customers to address these impacts;3) The products and serices that customers need to addressthese impacts and the barriers to addressing them;

4) The approaches needed to raise awareness of how ourcustomers manage their GHG emissions and reduce t heircarbon footprint.

2.3.2 Based on our understanding of our customers, we willdeelop products, serices and communication andengagement strategies to enable them to address potentialimpacts and reduce their carbon footprint.


2.5 CorPorate Banking2.5.1 We will deelop and implement a process to consistently

assess the financial implications of carbon and climate risksreleant to our clients and will train employees to implementthis assessment.

2.5.2 We will consider practical ways to assess the carbon andclimate risks of our lending and inestment actiities. Wherea feasible and releant methodology can be found, we willdeelop and implement this approach.

2.5.3 We will engage our clients to understand the carbon andclimate risks and opportunities associated with theirbusiness. This might include encouraging them to deelopa strategy to manage these risks; to measure and disclose

their carbon footprint; and, to set meaningful targets toreduce carbon emissions.

2.5.4 We will deelop financing solutions to facilitate inestment inlow carbon technologies and GHG reduction projects.


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2.7 ProjeCt finanCeFOR PROJECTS THAT RELEASE OR ARE LIKELY TO RELEASE 100,000 TONS CO2 EQUIvALENT PER YEAR (AGGREGATE EMISSIONS OF DIRECT SOURCES AND INDIRECTSOURCES ASSOCIATED WITH PURCHASED ELECTRICITY FOR OWN CONSUMPTION), ExCEPT WHERE JUSTIFIED DEvIATION IS PROvIDED, WE WILL REQUEST THE CLIENT TO:

2.7.1 Seek opportunities to reduce project-related GHG emissionsin a manner appropriate to the nature and scale of projectoperations and impacts.

2.7.2 Quantify and disclose direct GHG emissions and indirect GHGemissions associated with the off-site production of powerused by the project.

2.7.3 Monitor and report GHG emissions annually in accordancewith internationally recognized methodologies.

2.7.4 Ealuate technically and financially feasible options toreduce or offset project-related GHG emissions during thedesign and operation of the project.


seCtion 3.0WE WILL ENGAGE OTHERS TO SUPPORT THE GROWTH OF A LOW CARBON ECONOMY, WHERE CONSISTENT WITH OUR CORPORATE POLICIES ON PUBLIC ENGAGEMENT.

3.1 We will disseminate information through our network ofcustomers, suppliers, staff and other stakeholders to raiseawareness about climate change and the opportunities forreducing GHG emissions.

3.2 We will engage our significant suppliers on climate changeissues and work with them to enable us to reduce GHG

emissions throughout our supply chain.

3.3 We recognize that tackling climate change cannot be soledthrough oluntary action alone and we support the adoptionof effectie and efficient regulation and policy to reduce GHGemissions. Such support may include engaging policy makersand/or key stakeholders on an indiidual basis or throughreleant industry and multi-stakeholder initiaties.



testingaPProaChes


maturePrograms

notaPPliCaBle

2.6 investment Banking anD markets

2.6.1 cOrpOrate aDvisOryWe will deelop the knowledge, tools and skills necessary toadise our clients of the potential financial implications ofcarbon and climate risks and opportunities associated withtheir business transactions.

2.6.2 structureD lenDing & venture capitalWe will develop viable financing solutions to facilitate investmentin low carbon technologies and GHG reduction projects.

2.6.3 traDingWe will deelop epertise to support emissions trading,weather deriaties, renewable energy credits and otherclimate related commodities, and look for ways to play aconstructie role in promoting these.


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seCretariat of the Climate PrinCiPles:

The Tower Building (3rd Floor)York Road

LondonSE1 7NxUnited KingdomTel: +44 (0) 20 7960 2970Fa: +44 (0) 20 7960 2971

Contact:Emily FarnworthEmail: [email protected]

For more information, please isit: theclimateprinciples.org

Progress review CarrieD out By:

PricewaterhouseCoopers LLP1 Embankment PlaceLondonWC2N 6RHUnited KingdomTel: +44 (0) 20 7583 5000Fa: + 44 (0) 20 7822 4652

Contacts:Jon WilliamsEmail: [email protected]

Shami NissanEmail: [email protected]

Colin McKeeEmail: [email protected]

For more information, please isit: www.pwc.com/sustainability

aDoPting institutions:

Contact: Jerome Courcier

Email: [email protected]

Contact: Francis SullianEmail: [email protected]

Contact: Sabine Schlueter-MayEmail: [email protected]

Contact: Kylie BurgiEmail: [email protected]

Contact: Andreas SpiegelEmail: andreas_spiegel@swissr

climate principles progress review

Documents