The Principles of Banking, 2nd Edition

CHAPTER 22Sustainable Banking and Climate Change Risk Management

Abstract

Banks today are following a strategy in line with a more sustainable approach to commerce, and also in reaction to the impact of climate change on the economy. Regulation is also requiring banks to adopt a more “green” approach to originating customer business. We approach the topic from the perspective of the balance sheet manager at a bank, and the perspective of ALCO.

As Chapters 1 and 18 showed, banks have always been exposed to a large number of varied risks incurred in undertaking the ordinary course of business. To these we must add environmental risk and climate change risk. Unsurprisingly, the Basel Committee as well as national regulatory authorities have published guidance on this topic that banks are obliged to be compliant with; that said, in the field of sustainable banking and environmentally friendly banking there are also areas where a bank may wish to follow its own course of action, not influenced by supervisor edit.

SUSTAINABLE BANKING AND GREEN BANKING

Green banking is a recent development in banking, and as with much in finance, there is more than one way to define it.

An internet search defined it as:

any form of banking from which the country and nation gets environmental benefits. A conventional bank becomes a green bank by directing its core operations towards the betterment of the environment…. It means developing inclusive banking strategies which will ensure substantial ...