Sustainable Finance Market Update – Banking

Financial Centres for Sustainability (FC4S) is launching the third report of the Road to COP26 Sustainable Finance Market Update Series. This series of decks reviews the main market developments to mobilize green and sustainable finance and brings examples of supporting national and international guidance and regulations.

The third edition is about how the banking industry is integrating ESG factors into its strategies, increasingly implementing risk management frameworks, and mobilizing capital to meet global sustainability goals.

Highlights:

• Banks recognize that ESG issues pose real financial risks and are starting to take them into account in their governance and strategy. They are also reacting to increasing concerns about the magnitude of physical and transition risks posed by climate change.
• The global volume of green and sustainability-linked loans increased from US$36 billion in 2016 to US$200 billion in 2020 (BloombergNEF).
• Most ESG reporting and disclosure from banks has been voluntary and mainly driven by the increasing demands to engage in ESG risk management and reporting by investors, customers, shareholders and civil society.
• The increase in social, sustainable and green-labelled finance and the development of specific tools has allowed banks to better align portfolios with the SDGs and the Paris Agreement.
• Several banking authorities have incorporated E&S risk reporting into their supervisory activities and recommendations, and they have also been integrating climate change into stress tests and developing various forms of sustainability taxonomies.