Research claims financial sector’s approach to climate change is “fragmented”

Climate change

New research shows a lack of transparency and alignment of financial institutions across all urgent sustainability challenges, The World Benchmarking Alliance (WBA) says.

The WBA says its new Financial System Benchmark highlights that the financial sector’s current approach to tackling climate change and protecting human rights is fragmented, siloed and insufficiently aligned to drive scale.

Published at COP27 today 8 November, it is the first benchmark covering 400 of the world’s leading financial institutions, including asset owners, banks, asset managers and insurers, the WBA says.

According to the WBA, only 20% of the financial institutions with the greatest ability to influence the achievement of the UN Sustainable Development Goals have publicly acknowledged their impact on people and the planet.

We have developed this benchmark as a tool for change.

Only 2% of financial institutions disclose their financing to low-income countries, despite $100billion worth of climate finance being promised to enable adaptation and mitigation of climate change in 2009 and going unfulfilled, the WBA says.

Other insights from the research show that less than 40% of financial institutions have disclosed long-term net-zero targets.

Outside of the minimum legal requirements, less than 10% of the 400 institutions assessed disclose the processes they have in place to identify human rights risks and impacts within their own operations, and less than 3% within their financing activities.

And less than 5% of financial institutions acknowledge they have a process to identify the impact of their financing activities on nature.

This is the first benchmark developed by the WBA that focuses on financial institutions. It covers governance, planetary boundaries as well as human rights and social issues, and provides insight into the progress (or lack of) in the finance sector, the organisation says.

The WBA says the results provide guidance for financial institutions to improve their impact on people and the planet, and a transparent and independent mechanism tracking their progress against global standards and peers.

There is no hiding from the fact the world is behind on where it should be towards net zero.

World Benchmarking Alliance’s Financial Systems Lead, Andrea Webster, said: “Different parts of the finance sector have different roles to play in triggering the powerful domino effect that is needed to mainstream sustainable finance. Providing transparency shows us what is currently being achieved, what can be scaled and which areas need urgent collaboration.

“We have developed this benchmark as a tool for change. Yes, it shows a dismal picture overall of where we are now, but the intention is for it to provide a roadmap for companies themselves.

“While we recognise that great efforts are being made by many, frustration is high and trust in the sector is low. This benchmark provides a basis for hard but meaningful conversations. There is no hiding from the fact the world is behind on where it should be towards net zero and in ensuring that no one is left behind, we need a social transition as well as an energy transition.”

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