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OIC banks can improve their climate impact by learning from the challenges of global banks
In the face of rising concerns over greenwashing, OIC banks have an opportunity to enhance their climate impact by learning from global banks' challenges. While the pace of responsible finance targets has quickened, so has the scrutiny from stakeholders and regulators. An analysis by RepRisk indicates that greenwashing risks for companies have fallen for the first time since 2019, highlighting the evolving landscape financial institutions must navigate. With an increasing emphasis on transparent and actionable climate targets, OIC banks can draw valuable insights from the Transition Pathways Initiative's (TPI) recent report on transition in the banking system, which underscores the importance of comprehensive target-setting and decarbonization planning.
The report sheds light on the pitfalls faced by larger banks, such as overly narrow climate targets and the lack of comprehensive disclosures on capital market activities. As OIC financial institutions and those in Islamic finance aim to decarbonize their portfolios, they must consider sectoral relevance, the materiality of emissions, and the integration of broader metrics like the Energy Supply Financing Ratio. Ultimately, the focus should shift from merely disclosing targets to implementing strategies that drive real-world economic changes, thereby aligning with global efforts to limit warming and promote a Just Transition.
The full story of climate data for financial institutions isn’t just the numbers
The Network for Greening the Financial System has released a detailed overview of the state of emissions data and ways to improve them. It is much more important than it may appear at first glance. That’s because measurement and reporting are designed to guide how the data are being used, but no single metric or methodology provides a complete guide to Net Zero or Paris-alignment.
The purpose of climate disclosures is to help users of its reporting to evaluate the degree to which the entity is protecting itself against future risks associated with its greenhouse gas (GHG) emissions from climate change, nature loss, and the achievement or failure to see through a Just Transition. The numbers only tell one part of that story, even if they are perfectly consistent in what is being reported between different entities.
The much more important information comes through identifying how much an entity can and expects to be involved in influencing changes to the emissions it reports today for future periods. If they can clearly break down the emissions they report into buckets of emissions based on what they can and cannot influence, and then explain how they plan to influence others to reduce in line with their targets, then the report data become much more powerful.
Instead of being just another metric to report, it becomes enriched with both information about the present and guidance about the future, which brings both value creation potential and accountability.
Climate Disclosures Heighten The Risk To Companies That Aren’t Planning Financing For Their Transitions Today
High-emissions companies already face less appetite from banks to lend to them, according to a study by BIS researchers using data on Japanese banks
Greater regulation on climate disclosures, especially for companies in Islamic markets, is going to increase the scopes of emissions that impact bank evaluations of companies’ climate risks
Increasing physical risk outcomes that hurt banks’ financial strength will amplify the impact of more and better disclosures of emissions