In my last blog, I wrote about the challenges facing many banks as they aim to hit their sustainability targets, based on our recent report with Efma, a global financial services trade association. I had the opportunity to share our findings at a recent Efma webinar and hear from executives at two major banks, ABN AMRO and BBVA, who were also interviewed for our report (along with eight other major banks, such as Deutsche, ING and Standard Chartered, for example). This is what I learnt.

Risk management is key
BBVA recognised that it needed to embed climate data into its risk management framework. This was one of the major issues that came out of our research. Said Antoni Ballabriga, Global Head of Responsible Business at BBVA: “If you transform risk management, you transform the bank.”

The bank has restructured its business units (retail, commercial, etc.) to report to the global head of sustainability, who reports to the CEO. It has doubled its targets for sustainable finance projects to €200 billion by 2025. It has already published sustainability reports in the TCFD format (Task Force on Climate-Related Disclosures; this is now the standard) for the last three years. The company knows this is a mindset shift for banks. All employees – not just leaders – need to be on board. BBVA is currently training 80,000 staff on this topic.

More regulation, not less
ABN AMRO has been on this journey since 2016, when it was looking at areas such as inclusion, equal opportunities and human rights. It was one of the first banks to set up a Sustainability Linked Loan (with Philips).

Tjeerd Krumpelman, Head of Group Sustainability, ABN AMRO, said: “In 2017, we flipped things around for ABN AMRO clients, saying that sustainable investing should be the norm. Whenever people come to the bank as a client, the standard offering on behalf of ABN AMRO will be sustainable mandates. And clients appreciate this. They understand.” The bank is now in the top 15% of the Dow Jones Sustainability Index and aims to be in the top 5%. Krumpelman argued that “the pace of regulatory change is not high enough,” a comment that was repeated by other banks we interviewed as part of our research. ABN AMRO has invested €425 million into a sustainable impact fund, which covers energy transition, the “circular economy” and social entrepreneurs.

Smaller banks are struggling
At the Efma event I moderated a panel with Standard Chartered Bank and two smaller regional banks (from Europe and Africa). Tier 1 banks have access to specialist talent, funding and resources to improve reporting disclosure and transparency, build models for scenario planning and integrate climate data into their risk management framework.

Smaller banks, however, are struggling under the increasing weight of regulatory requests, the different climate risk model methodologies and the variety of climate standards and ESG ratings – as well as lack of access to specialized talent. One panelist argued that that the “regulatory framework was confusing … we need more clarity,” and that it was “very overwhelming, especially around the costs associated with sustainability implementation.”

Clearly, there is plenty for banks still to do. Many banks are at the start of their journey and those in execution mode are facing challenges. In my final blog, I’ll look at how technology can help banks hit their sustainability goals, especially around data integration, analytics and reporting.

For more information, please download our report: “Taking sustainability seriously: Are banks ready?”