As the northern hemisphere continues to smoulder from devastating wildfires and many countries register record-breaking temperatures, the urgent need to take faster action on addressing climate change is demonstrable. Yet, it is estimated that up to $10tn per year in financing is going to be required to deliver on the Paris Agreement.
Clearly, banks have a crucial role to play in funding the economy-wide transition to net-zero carbon emissions, but are they moving fast enough? Who is leading the charge and who is lagging behind? These are the questions that, together with sustainable economy research and media organisation Corporate Knights (CK), we looked to answer in the second annual Sustainable Banking Revenues Ranking, which examines how much of banks’ overall revenue is being generated from sustainable lending, investments and underwriting. The ranking is based on the highest sustainable revenue ratio, rather than the highest absolute sustainable revenue total.
“The main way this ranking helps the banking industry is that it provides a league table-style insight into banks’ exposures, and documents a piece of the growth pie,” says Toby Heaps, CK co-founder and CEO. “Other rankings focus on the negative aspects of the transition, such as the financing of fossil fuels, which is a long-term trend of deceleration and decline. Instead, we look at the increase in green energy financing and other solutions for a low-carbon sustainable future, which will see significant acceleration and long-term secular incline.
“In its nascent form, we gain valuable insight into banks’ positioning in terms of the shift from stocks of energy to flows of energy,” he adds.
The ranking evaluates members of the Net-Zero Banking Alliance (NZBA), who also report under the Task Force on Climate-related Financial Disclosures (TCFD). In 2023, 113 banks were eligible, 22 more than in 2022. The number of banks for which CK was able to calculate a non-zero sustainable revenue ratio increased from 60 to 87 for the 2022–23 review period. These 87 banks collectively earned $53bn in sustainable revenues from their loan books, investment portfolios and underwriting and advisory services during that period.
In 2022, the total outstanding sustainable loan book for the banks was $1.1tn, a 55% increase from 2021. While this is a step in the right direction, the 2023 Banking on Climate Chaos Report indicates that the 60 largest banks in the world have financed more than $5.5bn over the past seven years. The data also shows that these banks have issued more than $2.1tn in new loans to the fossil fuel industry between 2019 and 2022.
The total sustainable bond underwriting and sustainable project advisory volume among the NZBA-TCFD banks increased 144% from 2021 to 2022, to nearly $1.5tn. The 2022 total sustainable assets under management (AUM) was $48.6bn, which is significant, because no sustainable AUM data was quantified in 2021.
The increase in these sustainable totals is attributable to a number of factors, including an increased number of banks in the universe, significant improvement around sustainable finance disclosure, and a threefold increase in the response rate of the banks that were assessed (31 responses).
“This year, we witnessed a marked improvement in disclosure by the banks. We also saw a 300% engagement improvement. I have never before seen such a huge uptick in engagement, which illustrates the growing traction of the survey in the industry,” says Mr Heaps.
Interestingly, the overall universe has shifted dramatically year on year. “In last year’s ranking a ratio of 3% was enough to get into the top 10, whereas this year it is 12.8%,” says Chloe Sainsbury, CK’s senior analyst. “More than 20 banks dropped at least 20 places, even though their ratios stayed the same or even increased a little bit, because they’re just not keeping pace with the whole universe. Those in the top 10 are massively outpacing their peers.”
Top performers
Vancity, which earns significant sustainable revenue via loan support to borrowers from high-emitting sectors to improve emission measurement and reporting practices, as well as developing climate transition plans, topped the list for the second year in a row. However, the Vancouver-headquartered credit union’s sustainable revenue ratio decreased from 34.1% in 2021 to 24.3% in 2022.
Three newcomers ranked in the top five in the 2023 edition of the Sustainable Banking Revenues (SBR) league table are Procredit Holding (22.2% SBR ratio), Triodos Bank (21.3% SBR ratio) and Turkiye Sinai Kalkinma Bankasi (17.5% SBR ratio).
Second-ranked ProCredit Holding is a recent signatory to the NZBA that was not included in the inaugural Sustainable Banking Revenues Ranking in 2022. It is the parent company of a development-oriented group of commercial banks, where the business model of the group is based on “socially responsible banking”. Its 2022 sustainable revenue figure consists of interest earned on outstanding energy efficiency and renewable energy loans.
Third-overall ranked Triodos Bank, which was part of the universe for the 2022 league table, but did not rank due to issues around disclosure, is an ethical bank which markets itself as a leading expert in sustainable banking. In 2022, it reported $123m (27.7% of its loan book) in lending in the following sectors that align with the CK Sustainable Economy Taxonomy: organic farming/food, sustainable property, renewable energy and environmental technology.
However, all of its activities are sustainable, according to the bank, and have been since its inception in 1980. “Sustainability is in our DNA and with every decision we make, whether an investment or a loan, we look at impact first, then risk and return. We strive for high positive impact with modest risk and a decent return,” explains Jacco Minnaar, chief commercial officer at Triodos Bank. “This means for every decision we look at how the project/company accelerates and contributes to at least one of our five transition themes: energy, food, resources, society and wellbeing.” Last year, in a world first, Triodos launched a bio-based mortgage, which provides an interest discount if the borrower builds their house using circular bio-based materials.
Yet it has a sustainable revenue ratio of 21.3% instead of 100% because Triodos invests in several sustainable sectors, such as culture, education and healthcare, that are not part of the CK methodology because they are not included in the EU Taxonomy.
“While most of the attention to date has been focused on the green side, we believe that the financial sector also needs to focus on creating social impact,” says Mr Minnaar. “It would help if there would be a social taxonomy, and we want to use our position to constructively be a part of that debate.”
“I understand that social impact is more complex to measure than carbon emissions, for example, but that doesn’t mean that we shouldn’t strive to have a framework and to make it measurable, so that investors can also assess that part of the equation.”
Big movers
Italian lender UniCredit recorded by far the highest volume of sustainable underwriting and advisory services, worth a total of $451bn. This consisted of a volume of green and sustainable bond underwriting totalling $111bn and a green loan underwriting volume totalling $341bn. It also leapt 19 places in the ranking and entered the top 20 in 18th position.
Fiona Melrose, head of group strategy and environmental, social and governance (ESG) at UniCredit, attributes this improvement to the bank’s overarching commitment to do the right thing for both clients and society. “Under our ‘UniCredit Unlocked’ strategic plan, we set ourselves the target of €150bn in cumulative ESG volumes. In line with this, we have tracked our progress on sustainable business and focused on our revenue from clean sources — most notably sustainable loans and mortgages — and social loans. This has been the main driver of the increase in our sustainable revenue ratio over the past year, in line with our concerted focus on supporting clients in a just and fair transition.”
UniCredit has also made strides to embed the social component into its overall ESG strategy. “Our role should be to assist our clients and communities in making meaningful progress towards a more sustainable, inclusive and equitable society in the long term,” says Ms Melrose. “To this end, and in line with EU direction, we have widened the perimeter of social lending from €1bn to €10bn and worked to increase our own social contribution. With the depth of our expertise, resources and financial plumbing in 13 countries, we know we can make a tangible difference.”
Türkiye İş Bankası (İşbank) has seen the largest rank improvement, moving up 30 places from 57th to 27th. CK was able to quantify revenues from a much larger portion of the bank’s loan book in this year’s ranking because of direct engagement by the Turkish lender. İşbank’s 2022 sustainable revenue figure consists of interest revenue earned from the following loan themes: renewable energy, sustainable agricultural, green vehicles, resource efficiency, green buildings, green mortgages, marine conservation and providing finance to women entrepreneurs.
Amalgamated Bank, which has a SBR ratio of 18.8%, dropped from third to fourth in the 2023 league table. The US union-owned institution earns sustainable revenue from interest on a significant portion (36.5%) of its outstanding loan book dedicated to the category of climate protection.
Challenges remain
Despite the vast improvement in disclosure this year, standardised reporting remains a major challenge for the banking sector when attempting to track its progress. A lack of transparency around investments also leaves banks open to allegations of greenwashing.
Ms Sainsbury says: “One of the biggest challenges we face is that many banks don’t report in the same way year to year. They might capture something different one year to the next, or they report only the highlights of their sustainable activity, so we don’t get a full picture of how they are improving.”
Yet it is likely that reporting will continue to change in the foreseeable future, as reporting matures and banks update how and what they disclose. According to Ms Melrose, for example, UniCredit’s sustainability reporting is carried out via several publications, most notably its Integrated Report, TCFD Report, Principles for Responsible Banking Report, Sustainability Bond Report, Pillar III Report and financial reports, and continues to evolve every year. “The PRB, Pillar 3 and ESG section within the financial report have been the main changes in terms of reporting this year,” she says. “As regards disclosure, the biggest change made by the bank in recent months has been the publication of the first-round net-zero targets on oil and gas, power and automotive sectors.”
Another inconsistency that spans the whole universe is standardised definitions. “For investments, we have strict criteria and banks need to map the investment to our taxonomy,” Ms Sainsbury explains. “But it is not the same for loans and bonds, which makes it difficult to tell what’s been included from one bank to the next.”
To improve transparency, she suggests that banks should provide a better breakdown of their loan books and investment portfolios, as well as reporting under standard definitions.
Methodology
The Sustainable Banking Revenues Ranking analyses the revenue sources of banking institutions that are signatories to the Net-Zero Banking Alliance and, in addition, are committed to reporting under the Task Force on Climate-Related Financial Disclosures framework. In particular, it examines the amount and percentage of their revenue which is obtained from sustainable sources, as defined by the Corporate Knights Sustainable Economy Taxonomy. The institutions with the greatest percentage of sustainable revenue as a share of their overall revenue are ranked the highest.
Sustainable economy research and media organisation Corporate Knights conducted the analysis and measured the revenues each institution earned from sustainable loans, sustainable investments and sustainable bond underwriting and project advisory services during 2022, based on activities defined as sustainable within the Corporate Knights Sustainable Economy Taxonomy.
In 2023, 113 bank institutions in total were eligible for analysis. Of these, 26 did not report sufficient data or report their data in a format which enabled Corporate Knights to complete its analysis. Therefore, these banks have been excluded from the ranking.
Data was obtained via public disclosures (annual reports, sustainability reports, responsible investing reports, and so on) with some supplementary data provided by banks which responded during the data verification period.
All banking institutions that were assessed were contacted for verification of the data and given four weeks to respond and provide any data that may not have been captured through public disclosures.
Correction to print edition: Due to miscommunication (around the value of syndicated sustainable loans attributable to Commerzbank), Commerzbank’s ranking has been updated to 26th overall.
