Banking Beyond Climate Commitments: Transforming Client Engagement and Products & Services for a Net-Zero Emissions Future
This paper focuses on answering the following question: how can a private sector bank—one that has already committed to shifting its business model towards net-zero emissions—change its client engagement strategy and update its offerings?
This paper analyzes action already taken by banks and identifies additional steps private sector banks should take to align their business model with the Paris Agreement (greenhouse gas mitigation objective) and cater to their clients’ needs in a manner that fosters a net-zero transition.
Banks are gradually setting different types of targets: sustainable finance (green) commitments, science-based targets (SBTs), and net-zero commitments. In the financial sector, a sign of growing momentum behind climate action is the launch of the Glasgow Financial Alliance for Net Zero and the Net-Zero Banking Alliance in April 2021. Increased engagement in the Science Based Targets initiative is another sign of growing engagement from the banking sector in Paris alignment. Currently, 78 banks are working on their SBTs, and the number of participating banks is on the rise.
This paper explores how banks can best shape their client engagement with compelling products and services to align their portfolios, and their clients’ businesses, with the Paris Agreement’s goal to limit temperature rise to 1.5°C.
Ultimately, we find that many banks are just beginning to include Paris alignment in their business strategies. The next step for most banks is to clearly articulate how relationships with clients will relate to Paris alignment, integrating five key elements into this strategy: collection and management of GHG data; emissions reductions targets; client benchmarking; clear client engagement policies; and equipping relationship managers for these engagements.
- Increasingly, private sector banks are committing to shift their portfolios to net-zero emissions by 2050 to align with the objectives of the Paris Agreement—a welcome trend given their important role in shaping and advancing inclusive, sustainable economic growth.
- This paper explores the changes and innovations banks need to make in their client engagement as well as their products and services; these two business model elements will be central to achieving alignment with the Paris goals.
- Banks face important challenges, which represent opportunities for change, including collecting emissions-related data, strengthening the climate-related knowledge of relationship managers and key backoffice functions (credit analysis, credit risk, and product managers), and rewarding staff for climate-relevant transactions through performance incentives. These challenges are shared by banks operating in developed, emerging, and new frontier markets.
- Banks should design a Paris-aligned client engagement strategy that clarifies to clients and other stakeholders how, and over what time frame, their relationships and offerings will change. This strategy should include five steps: data collection and management, setting emissions reduction targets, benchmarking clients’ emissions reduction performance, drafting clear client engagement policies, and equipping relationship managers with knowledge and tools about climate change and Paris alignment.
Private Sector Finance
Advancing sustainable investment and banking practices in the mainstream financial marketplace through tailored data, research and peer-to-peer learning.Part of Finance