ABN AMRO measures whether its energy portfolio is Paris-proof

Basically, the scenarios generated by the analysis will enable the bank to work with its clients to achieve a cleaner energy mix. The main question behind the research was, how can a bank make a quantifiable contribution to the global energy transition? It’s not as simple as you might think, says Jan Raes, Global Sustainability Adviser at ABN AMRO. It’s important for ABN AMRO to use its influence as a lender. Jan explains, “It’s with our clients that we need to discuss where the greatest negative impact is in order to bring about a change of course. This is why banks should focus on climate-critical sectors like energy. Bringing about faster change there, that’s what will have an impact.”

Where do we stand?

Jan says this approach is fundamental to the bank, as reflected in a recently published ABN AMRO report entitled Guiding a Bank’s Energy Portfolio to Paris . The report presents research conducted by ABN AMRO in collaboration with the international think tank 2DII. Jan says, “As a first step, we wanted to find out how to become Paris-proof with our energy clients, using a recognised scenario created by the International Energy Agency  as a benchmark for assessing the energy mix of our portfolio.” In the report, ABN AMRO and 2DII take a joint look at the bank’s energy clients, concluding that ABN AMRO is on the right path but still has a way to go. Currently, 60 per cent of funds earmarked for loans to energy companies is allocated to renewable energy generation capacity. The analysis further confirms that the bank’s policy of financing no new stand-alone coal-fired power plants is having an effect. But if the bank truly wants to be in compliance with the Paris accord, there are coal plants which will necessarily have to close early. Plans for early closure are now being discussed with clients.

Accelerating the energy transition

“Simply promoting the growth of renewable energy won’t get us where we need to be,” stresses Jan. “Being Paris-proof is equally about how fast that growth happens. Existing clients in the current portfolio will increasingly be building up renewable energy over the next five years, with a growth in capacity of about 30 per cent. While that growth rate is a good thing, it still lags behind the Paris objectives. That means we’ll need to see capacity in renewable energy more than double over the next five years. Now it’s time to pick up the pace. All this means no more new coal plants or mines, in addition to closing certain plants and mines. Clients will also need to expand their renewable energy offering faster. It also means the bank will continue to screen new clients on the basis of their capacity to move at this accelerated pace. We’re using this input in our dialogue with clients about the energy transition plan for energy clients which the bank has made compulsory for several years now.” To shape this policy, the bank had production profiles drawn up for all its clients in energy production. The current analysis will allow the data to be validated again. ABN AMRO’s clients are no longer surprised to learn that loans are subject to sustainability-related conditions. Jan says, “Obviously, our discussions with clients are always about money. I mean, we’re a bank, right? And money in the capital markets increasingly comes with conditions attached. Entrepreneurs are well past being in denial. Their number-one priority is figuring out how they can remain commercially successful in a sustainable way.”

A next-generation climate strategy

“Banks armed with a climate strategy don’t always have an easy time communicating their plans to the outside world,” says Jakob Thomae, Managing Director of the think tank 2DII. “Curbing carbon emissions in their own client base is a relatively simple thing for banks to do. What’s key is being able to show that such measures actually do have a positive effect on our planet,” Jakob continues. “ABN AMRO has the resources, experience and expertise to develop a next-generation climate strategy. Most importantly, though, the bank should continue to focus on the demonstrable impact resulting from its influence as a lender, rather than exclusively reducing carbon emissions in its portfolio by way of excluding clients. That distinction isn’t always easy to explain, nor is it always in line with market expectations.” Accordingly, Jan says it’s clear what ABN AMRO’s top climate priority will be in the coming years. “In order to become – and remain – Paris-proof, the bank will have to assess and make course corrections more effectively, all while picking up the pace – together with its clients,” he says. “We’re also encouraging other organisations to adopt the 2DII methodology.”