France’s financial regulators, the Autorité des Marchés Financiers (AMF) and the Autorité de Contrôle Prudentiel et de Résolution (ACPR) announced today the publication of a new report examining climate commitments made by financial institutions including banks, insurers and investment management companies. The report focuses in particular on the exposure and policies of the institutions in relation to the fossil fuel sector.
The release of the study follows the publication of an initial report in December 2020 by the regulators of the financials’ commitments to address climate change and help facilitate 2050 carbon neutrality goals, and which also included an assessment of the sector’s policies and exposure to thermal coal. The new report examines the changes in the policies of the financial players relative to coal, and extends the analysis to other fossil fuel sectors such as oil and gas.
The report found a broad movement in the industry towards strengthening climate commitments, with actions focused in areas including divestment and exclusion policies and shareholder engagement, as well as pledges supporting green finance and investment and insuring environmentally sustainable activities. The report indicated that all of the banks and insurers, and most of the investors studied have advanced coal policies to include defined thermal coal exit dates, and the implementation of more stringent exclusion criteria and thresholds. Oil and gas policies appear to be less developed, according to the regulators, with many policies focused on non-conventional energy sources.
While the report acknowledged the growing momentum of climate commitments and actions by the financial community, it noted that the ability to assess, evaluate and compare these commitments remains challenging, given ambiguities in the institutions’ communication of the scope, implementation, and definitions used in setting their policies and pledges.
A lack of standard definitions and measurement methodologies also resulted in challenges in assessing the level of exposure of the financial institutions to oil and gas. While the report included oil and gas exposure estimates for banks, insurers and investment managers, it noted a high level of uncertainty in the assessments, given significant methodological differences between companies, a lack of standardized definitions, and varying considerations of exposure across the value chain of the fossil fuel sectors.
In order to facilitate proper assessments of the financial sector climate commitments and actions, the regulators make several recommendations in the report, including encouraging the institutions to adopt common frameworks and methodologies, intensify efforts to develop more robust, transparent and homogeneous way to measure and communicate fossil fuel exposure, increase clarity and precision of their oil and gas policies, and to consider the entire value chain in their assessments.
Other recommendations provided by the regulators included the formalization of policies surrounding shareholder engagement and supporting clients through the climate transition, providing employee training specifically aimed at promoting decarbonization strategies, and increasing transparency regarding asset management companies’ climate and engagement strategies.
Click here to view the AMF and ACPR report (French only).