SUSTAINABLE VIEWS

Silvia Pavoni Sustainable Views

Transitioning to a just economy will require leadership, commitment and money. This is why the second edition of Sustainable Views is dedicated to the role of finance in swaying corporate behaviour and the extent to which financial institutions themselves need to address their own sustainability agendas.

Banks not only lend to companies, from massive conglomerates to innovative start-ups, they also structure corporate equity and debt to make it attractive to investors. As a result, their influence on business and the economy cannot be understated. But this influence is perceived as negative by many people.

Veteran anti-corruption campaigner Frank Vogl writes that since the Great Depression and World War Two, short-termism has impaired bankers’ moral compasses. Will the fallout from Covid-19 and the prospect of climate disaster lead to a change in philosophy at the top?

Santander executive chairman Ana Botin leads one of the world’s largest banks. She addresses the challenge many institutions face in trying to reduce funding to high polluters as it can, perversely, cause social harm in developing countries.

At the same time, financing to high polluters has changed little since the 2015 Paris Agreement on climate change, according to environmental group Rainforest Action Network. Are the world’s top lenders doing enough?

The debate over the role finance needs to play in creating a fairer and more sustainable economy is set to continue. And we hope you will join it.

Let us know your thoughts on any of the subjects addressed this month and we could publish your feedback in the next edition. Email your own sustainable views to [email protected] or the team at [email protected].

Ideas exchange

Resetting the banking sector’s moral compass

Frank Vogl

Chairman
Partnership for Transparency Fund

Bashing bankers has been popular throughout time. Public trust in bankers has probably never reached lofty heights and confidence in the west’s largest banks has, I believe, barely recovered from the debacles of the financial crisis, a decade ago.

There have been times when the culture that dominated many major banks was set by the tone at the top by men who had been deeply influenced by the Great Depression and World War Two. I had the privilege to know a number of them quite well and to work alongside a few of them. They were bankers who did make mistakes, but ones of banking judgment, not values.

What that generation of banking leaders all had in common was a profound sense that they had an abiding responsibility, as individuals, but also as leaders of major institutions, to serve the public interest.

The late Alden W. “Tom” Clausen, for example, left Bank of America, which he ran in the ‘70s, then the US’s largest bank, to become president of the World Bank because of an intense passion to work to reduce poverty in the world’s developing nations. He hired me and together we traveled to many countries where he constantly encouraged leaders to advance their poverty alleviation programmes.

Today, the absolutely dominant priority in the major banks, which shaped their culture, is the maximisation of short-term profits. It may lead executives in these banks to engage at times in dirty deals, including promoting subprime home mortgages and associated securities. The banks have paid record fines, but evidence of contrition there has been none.

The short-term profit maximisation and high executive bonus culture is not solely driven by the bankers. Recent decades have seen the emergence of non-bank financial institutions, notably private equity firms and hedge funds, that in some cases have placed enormous pressures on the banks to act to boost their share prices.

The leaders of major banks must urgently find their moral compasses, because they have an obligation to all of us to do so. The biggest banks headquartered in Western countries have balance sheets larger than the GDP of nations.

The staggering scale and power of these big banks obligates them to operate not only in the interests of their shareholders, but also in the public interest. It is high time that they did so.

On the spot

Santander’s Ana Botin on the challenges of sustainable finance

Ana Botin

Executive chairman
Banco Santander

As a company, you’ve committed to being carbon neutral in your own business by the end of the year. Should you also not stop financing highly-polluting businesses at the same time?

You cannot stop financing fossil fuel companies from one day to another as the impact on society would be enormous, with the greatest impact on economies and people that can least afford it.

We have to make a transition in a way that is fast but also fair. In Poland, for example, we don’t finance new customers who operate coal-based plants but we continue financing power companies as the country’s energy supply remains reliant on coal. Reducing that reliance requires new renewable energy projects, and we recently financed one of the largest photovoltaic plants in Poland. But it takes time and cutting off power in the meantime is not a feasible option.

How are you helping the transition to a greener economy then?

Our role is to finance activities that will make a fast and fair transition possible. We have been one of the leading providers of renewable finance in the world over the last decade and are developing our sustainable finance [portfolio] further, engaging proactively on environmental, social and governance issues with corporate clients as well as small businesses and individuals. We have set a target to raise €220bn in green finance between 2019 and 2030 and have also committed to aligning our portfolio to reflect the need to limit global warming to 1.5 degrees.

Are these types of initiatives enough?

I went to Greenland last year [as part of the Planeta Calleja documentary] to see the impact global warming is having first hand. I met scientist Jason Box, who is a professor in glaciology and expert on climate change. He believes that even if we assume that we will do everything we can to reduce carbon emissions, it would still not be enough. Of course, we need to act now to do everything we can to reduce emissions sustainably but investment in new technologies to capture carbon efficiently is also going to be critical.

Data box

Can the largest fossil fuel financiers change?

In October, JPMorgan pledged to push clients towards aligning with the Paris Agreement, which aims to contain global temperatures rising to less than 2 degrees Celsius above pre-industrial levels and to pursue further efforts to ensure the rise is by only 1.5 degrees Celsius (a target experts warn is slipping out of reach.)

On the surface, the new policy sounds positive, but much needs to change. JPMorgan is the world’s largest financier of highly polluting sectors, according to the Rainforest Action Network (RAN), which measures finance to arctic oil and gas, fracking, coal mining and coal power, among others. The bank has lent over $268bn to fossil fuel companies between 2016 and 2019, after the Paris Agreement was signed.

As RAN’s climate and energy programme director Paddy McCully noted at the time of the announcement, “disastrous fires and hurricanes are happening in 2020 and we need to see action right now… If JPMorgan Chase is serious about aligning with the Paris accord, it must immediately stop financing expansion of fossil fuels and deforestation.”