Banking on net zero

Banks have a pivotal role to play in accelerating the transition to a low carbon economy; they can direct financing towards activities that are aligned to the Paris Agreement, and away from those that are not. They are the key intermediaries of the investment required to reach net zero. And they can help their clients with strategies and products that support the transition toward a sustainable economy. Some are doing better than others.

One of the successes of the COP26 summit, hosted in Glasgow, was the pledge by more than 450 financial institutions in 45 countries that by 2050, the $130tr in assets under their management will be aligned with net zero emissions.

The pledge, known as the Glasgow Financial Alliance for Net Zero (GFANZ), theoretically covers the $100tr in investment economists believe is likely to be needed in the next three decades to meet the net zero goal.

As Mark Carney, former governor of the Bank of England, now a UK and UN climate envoy, said: “The architecture of the global financial system has been transformed to deliver net zero … [This] rapid, and large-scale, increase in capital commitment to net zero, through GFANZ, makes the transition to a 1.5°C world possible.”

This followed the launch, in April 2021, of the UN-convened Net-Zero Banking Alliance (NZBA), which brings together banks worldwide, representing over 40% of global banking assets, which are committed to aligning their lending and investment portfolios with net zero emissions by 2050.

In line with our tradition of sustainable banking, our ambition is to become a pioneer in the global sector in promoting a sustainable transition of our clients and society as a whole. Putting words into action to achieve real change

Eugenio Solla, chief sustainability officer, CaixaBank

The NZBA will reinforce, accelerate, and support the implementation of decarbonisation strategies, providing an internationally coherent framework and guidelines in which to operate, supported by peer-learning from pioneering banks. It recognises the vital role of banks in supporting the global transition of the real economy to net zero emissions.

CaixaBank, Spain’s largest bank by assets and clients, is a member of both of these groups. It joined the NZBA as a founding member, and has been a member of the 197-bank United Nations Environment Programme Finance Initiative (this calls for banks to align their business activities to the Paris Agreement) since 2018. CaixaBank has also been a signatory to the Principles for Responsible Banking since 2019, a year in which it also signed up to the Collective Commitment to Climate Action (CCCA). This last agreement committed the bank to mobilise products, services, and partnerships to facilitate the economic transition needed to achieve climate neutrality.

In 2021, the bank also joined the Alliance for Carbon Accounting in the Financial Industry (PCAF). This will provide an internationally accepted framework for measuring financed emissions, accepted globally, and will mean the inclusion of CaixaBank in the 'Financial Institutions Taking Action' list, which identifies the entities that have committed to measure and disclose its emissions financed with the PCAF Global Standard.

Actions speak louder than words

Signing up to pledges is nothing without action. Sustainability must be integrated into banks’ business models. For CaixaBank, environmental strategy constitutes one of the five pillars of its Socially Responsible Banking Plan. The bank is committed to ensuring sustainability beyond its legal obligations and has integrated environmental management into its business activity.

In 2019, CaixaBank published its first Declaration on Climate Change, a proposal with five action lines, including commitments related to decarbonisation: Fund solutions to climate change; manage the risks derived from climate change; minimise and offset the carbon footprint; collaborate with other organisations for joint progress; and report progress transparently. And, in order to keep up with the latest developments in this area, CaixaBank will soon launch an update of the document, stepping up the bank’s net zero ambitions, in line with the objectives set out by the new CaixaBank Sustainability Director Plan 2022-2024, which will be presented to the market in the coming months.

Follow the money

Most importantly, the banking industry must help direct financing and investment towards sustainable activities. Through its activity, CaixaBank backs environmentally friendly initiatives and projects, which contribute to preventing and mitigating climate change, fostering the transition to a low-carbon economy and social development. In 2021, it mobilised €11.6bn of capital to green and environmental, social, and governance-related funding (+131% compared to 2020). Simultaneously, CaixaBank also participated in the issuance of 18 ESG-related bonds worth a total of €16.2bn (excluding its own issuance). Some €8bn out of that total were green bonds.

The asset management operation, too, can be reoriented to help with the transition to net zero. Through its subsidiaries VidaCaixa (insurance) and CaixaBank Asset Management (fund management), CaixaBank is committed to sustainable investment, understood as investment that not only offers financial returns for investors, but also promotes management that is coherent with the creation of value for the whole of society.

To take this commitment in sustainable investing to the next level, in June 2021, CaixaBank signed a strategic partnership with BlackRock, by which BlackRock’s Fundamental Equity Impact team, is providing consultancy on impact investing in equity investment portfolios, due to its differentiated methodology in selecting companies that have a true impact on society and the planet. As a consequence, in 2021, CaixaBank launched a new range of investment funds and pension plans, the SI Impact Solutions Range, with the highest sustainability rating in the new EU Sustainable Finance Disclosure Regulation (SFDR).

Both VidaCaixa and CaixaBank Asset Management (together with BPI GA) have the highest rating (A+) in responsible investment according to the PRI principles, an initiative backed by the UN. Both VidaCaixa and CaixaBank AM are the largest fund managers in their respective industries in Spain in terms of assets managed under ESG criteria.

Sustainability begins at home

But, of course, banks themselves must endeavour to stay green too. CaixaBank has an active emissions control policy, which has successfully reduced emissions by 80% since 2009. It contracts electric energy that comes entirely from renewable sources, and offsets 100% of its calculated emissions, including indirect emissions. And the bank is carbon neutral since 2018, a pioneer in the Spanish banking sector.

In addition, CaixaBank has issued green bonds under the framework of green bonds to support the United Nations Sustainable Development Goals (SDP7 and SDP9) for a total value of €3bn and £500m. The report about the environmental effect generated by this bonds, made in collaboration with Deloitte and revised by PwC stated that the allocation of net proceeds generated a reduction of GHG of 1.46 million tons of CO₂ (equivalent), emission savings equivalent to GHG generated by 285,000 vehicles/year, and generated 7,443 GWh of clean energy/year, the equivalent of annual consumption of 2 million households in the European Union.

Independent evaluation

Working out what these initiatives and actions mean, and how they compare across the industry is not easy. Fortunately, there are third-party experts tracking the progress of the financial services sector, who provide guidance in this area.

One such ranking is drawn up by Morningstar, a leader in ESG and corporate governance rating. Its Sustainalytics group ranks CaixaBank as the best bank in Spain in its ESG risk rating. This year the bank has jumped eleven places to 30^th out of 406 banks analysed in their global ranking.

This recognition follows CaixaBank's recent inclusion, for the 10^th consecutive year, in the Dow Jones Sustainability Index (DJSI), where the bank obtained the highest score (100 points) in the areas of risk management, and social and environmental reporting.

In 2021, CaixaBank has achieved the highest recognition given by CDP, the main global platform for gathering information and analysis on climate and environmental performance, as a leading company in sustainability, environmental management, and climate change, and it has been included in the 2021 edition of the A List, the global disclosure system’s best possible classification, becoming the only Spanish bank to achieve this score.