Global ESG Update

European banks dumping clients to avoid ESG risks

The European Banking Authority has reported that banks are dropping clients that are a potential climate risk rather than opting for the possibility of higher capital requirements. Banks are increasing prices, denying loan requests and ‘de-selecting industries and in some cases clients’.

Oil and gas projects are losing favour amid mounting pressure on the finance industry from regulators and investors to move into low-carbon sectors. Sectors seen to be at the receiving end of climate change (such as the mortgage market) are also undergoing reassessment by banks, the EBA said.

The financial sector is facing never before seen requirements to address environmental risks, with European lawmakers seeking to divert funds away from big polluters. The European Central Bank recently said that banks have been too slow to address the risks, with banks trying to work out how to assess the financial risks of environmental, social and governance factors without a lot of success. Overall, however, there are some deep movements underway in how banks do business.