Walking the Talk on Climate Change Banks as Agents of Change

Climate Change – Annual Impact on People

• > 300 million people affected

• > 300 thousand people die

Source: Human Impact Report, 2009

Climate Change – Annual Financial Impact I

• USD 2.0 - 4.5 trillion loss of natural capital

• Result of deforestation and degradation

Source: The Economics of Ecosystems and Biodiversity (TEEB), 2008

Climate Change – Annual Financial Impact II

• Cost of inaction on climate change 5-20% of global GDP

• Depending on the range of risks and impacts

Source: Stern Review, 2007

Climate Change – Annual Financial Impact III

• Cost of climate adaptation USD 75 - 100 billion

• Two third needed for developing nations

Source: World Bank Report, 2009

Source: KPMG (2008)

Readiness to tackle Climate Change

Source: KPMG (2008)

Financial sector readiness to tackle Climate Change

Linking Copenhagen 2009 and future role of Banks

How Financial Institutions Impact Climate Change

• Minimal impact from direct emissions

• Significant impact through assets in portfolio

• Emerging markets and low income countries

• Access to Finance

• Access to Energy

• Access to Housing

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FMO’s approach to addressing climate change

Access to Energy

• Quantitative targets for renewable and clean energy

• Access to energy prevails in low income countries

• Only where no options for renewable energy

• Best available technologies and mitigating measures

Access to Finance

• Financial institutions - risk management system

Access to Housing• Affordable and sustainable housing

• Client selection - exclusion list, environmental and social impact

• Client engagement - present business case

• Finance conditions - best practices (IFC Performance Standards)

• Contract clauses - mutually agreed action plans, pricing incentives

• Risk management

• Opportunities

FMO’s Business Case Approach

FMO’s Business Case Approach – Pricing Incentives

• Pricing incentives to reinforce the business case

• Risk based and linked to action plan

• Market pricing is starting point

• Based on ‘SMART’ agreements with clients

• Pilots started in 2009

• Positive experience to support implementation of action plans

FMO’s Business Case Approach – Case Study Pricing Incentive

• Bank in Africa active in high risk sectors

• Action plan: - implement environmental & social management system

- use FMO exclusion list for own investments

- appoint coordinator and assign budget

• Clear milestones defined with concrete deadlines

• External consultant paid by client

• After implementation: 25 bps reduction in margin

• Experience – client starts implementation right after contract signing

Conclusion and final thoughts on Copenhagen

• Banks CAN be Agents of Change as proven in various initiatives:

- UNEP-FI, UN-PRI

- Equator Principle Banks

- Development Finance Institutions

• Banks SHOULD be Agents of Change on a larger scale to:

- Get out of the ‘danger zone’ and improve risk management

- Proportionally contribute to investing in a sustainable future

- Stimulate and support their clients to do so

Thank you

Questions ?