Climate X report: most top banks fail climate adaptation tests

Climate X has released the "Top 50 Banks in the World Tackling Adaptation 2024" report, which evaluates the climate adaptation maturity of 50 of the world's largest commercial banks.

The report reveals that a significant majority of these banks are not adequately prepared to address the growing risks associated with climate change.

According to the report, only seven out of the 50 banks meet more than half of the adaptation criteria set forth by Climate X, and none of the banks meet all criteria. European and UK banks fare better in this evaluation compared to their counterparts in the US, Canada, and Australia, largely due to stricter climate policies and frameworks in their regions. Leading the ranking are Standard Chartered, Banco Santander, and UniCredit, which have demonstrated more advanced climate adaptation strategies.

Lukky Ahmed, CEO of Climate X, stressed the critical nature of the ranking. "The ranking comes at a critical time when climate change is having a profound impact on the global economy," noted Ahmed. "From extreme weather events to longer-term environmental shifts like rising sea levels and biodiversity loss, the business landscape is being transformed, and the banks that finance these businesses must adapt to a rapidly changing world. Despite the growing urgency, the study shows a significant gap in how banks address climate adaptation."

The report highlights notable disparities among banks on different continents. Standard Chartered (UK), Banco Santander (Spain), and Banco Bilbao Vizcaya Argentaria (Spain) were among the highest ranked, while Morgan Stanley and Goldman Sachs from the US were ranked quite low. Japanese banks like Japan Post Bank also appeared among the low performers.

Kamil Kluza, COO of Climate X, pointed out the methodology used to assess the banks. "The methodology we used gives a comprehensive picture of how these banks are progressing in their adaptation efforts," Kluza said. "However, it also reveals significant gaps in transparency and action. Most banks are not setting adaptation impact metrics, and few have clear lending strategies that support communities and businesses hit by climate-related disasters."

The ranking was based on 17 qualitative indicators grouped into three categories: strategic alignment and assessment of physical climate risks, implementation of adaptation measures and strategies, and monitoring, reporting, and transparency of adaptation actions. These indicators provide a thorough evaluation of each bank's climate adaptation maturity, as evidenced by their public disclosures, primarily their annual reports.

Ahmed further emphasised the necessity for banks to prioritise climate adaptation. "Climate adaptation is no longer a choice for the financial sector – it's a necessity," Ahmed continued. "Our ranking demonstrates that while some banks are beginning to take steps to prepare for a hotter, more volatile world, the majority have a long way to go. It is vital that banks incorporate adaptation into their strategic decision-making processes and develop products and services that support resilience."

Regional disparities were evident in the findings. European and UK banks generally performed better, influenced by more stringent regulatory frameworks. Even so, the report indicates that even the highest-ranked banks still have considerable work to do to fully integrate climate adaptation into their operations. This gap underscores the need for banks to take a leadership role in driving adaptation financing, especially as the economic costs of climate inaction continue to rise.

Climate X plans to refine its methodology and expand its assessments in future reports to capture a broader scope of climate adaptation activities. The organisation aims to highlight gaps in the financial sector's preparedness for climate risks. Ahmed concluded, "With this inaugural annual ranking, we hope to shine a light on the gaps in the financial sector's preparedness for climate risks. Our message to banks is clear: now is the time to act. The longer they wait, the more severe the consequences will be, not just for them, but for the entire economy."