At the Bristol Distinguished Address Series, Dr. Bevis Watts, CEO of Triodos Bank UK, emphasized the crucial role of banking in addressing climate change. He conveyed a sense of hope, stating, “We are finally recognizing the urgency of the environmental crises we face. Banks must be at the forefront of this change, as it aligns with their best interests.”
Using zoological metaphors, Watts critiqued the banking industry’s behavior since deregulation in the late 1970s, likening it to a “bull elephant seal” that prioritizes its own interests over the broader community and the externalities affecting businesses and individuals.
He called for a societal dialogue on banks’ responsibilities and their potential as agents of positive change. To fulfill this role, he argued, banks must prioritize safeguarding customers’ funds and utilizing them in ways that benefit society in the long run.
The pressure for banks to act responsibly is intensifying. Organizations like Extinction Rebellion and Greenpeace are spotlighting banks’ inadequate responses to environmental issues and urging them to withdraw investments from fossil fuels. Watts highlighted the bankruptcy of PG&E, a major US energy company, as a stark example of the systemic risks banks face when they neglect environmental responsibilities.
He stated, “This case exemplifies the urgent business rationale for banks to engage with climate-related risks, air pollution, biodiversity loss, and soil degradation—issues that will inevitably impact their loan portfolios.”
Citing a 2019 report from the Global Alliance for Banking on Values, which he co-founded, Watts pointed out that banks demonstrating strong environmental, social, and governance (ESG) performance consistently outperform their peers.
While he acknowledged the progress made by Mark Carney at the Bank of England in enhancing environmental risk assessments, Watts argued that we are merely scratching the surface. He advocated for a shift in the regulatory approach to align with the societal risks banks create through their practices, pushing for a comprehensive restructuring of the banking ecosystem.
Watts also addressed the emergence of challenger banks, stating, “While they bring competition in terms of services and rates, we need them to fundamentally challenge banking norms, not merely replicate existing models.”
This transformation should encompass various aspects, such as establishing common reporting standards, adapting regulations for clarity on banking activities, and negotiating capital requirements based on industry risks.
In conclusion, Watts asserted that promoting accountability shouldn’t fall solely on financial institutions and regulators. “We must create a culture where understanding the impact of our money is essential. Money and banking are not inherent; they are constructs that we can reshape for a fairer and more sustainable society.”
Finextra Research and ResponsibleRisk are set to focus on sustainable finance in investment and asset management at the upcoming SustainableFinance.Live Co-Creation Workshop in March 2020. Interested participants can register for an event that will explore sustainability demands, challenges in sustainable investment, and how financial services can contribute to achieving the UN’s Sustainable Development Goals by 2030.