Sustainability by liwenting


									Commercial banks and the shift to a low
          carbon economy

           Francis Condon

         Carbon Connections
             28th February 2008

This presentation covers…
Commercial banks and corporate social responsibility/sustainability
An overview of ABN AMRO’s approach to, and experience in addressing, the
challenges of corporate social responsibility and sustainability

Additional challenges of climate change issues today
What climate change means to commercial banks and how this issue is being
addressed in terms of direct impact, risk management and business

Role in the shift to tomorrow’s low carbon economy
Where commercial banks fit in terms of financing low carbon technologies.
Changes that could lead to faster development of new technologies. The link
between commercial banks and the higher education sector

Sustainability at ABN AMRO
Our definition

To live our Corporate Values and Business Principles and to meet the needs of
the organisation and our stakeholders, thus seeking to protect, sustain and
enhance human, natural and financial capital needed in the future.

Our ambition

We are committed to continuously improving the integration of sustainable
development into our working environment and business processes. Our aim is
to play a proactive role in contributing to sustainable development, within our
areas of influence. We are committed to accountability and transparency in our
sustainable development performance.

Direct and indirect impact

               Direct                                 Indirect

    On our employees
    • Engagement and satisfaction         With our assets
                                          • Capital allocation
    On the environment
    • Use of natural resources
                                          With financial services
    In local communities                  • Advisory and management
    • Community investment

               Accountability and transparency
                            • Sustainability Report

ABN AMRO’s Sustainability Strategy
 1. Being       2. Protecting      • Sustainability reports
    accountable    our assets
    and                            • Engagement and dialogue
    transparent                    • Risk policies and tools
                                   • Eco-Markets
 3. Providing     4. Being an      • Communities of Practice
    responsible      employer of
    financial        choice        • SRI, Microfinance
    services                       • Employee sustainability education
                                   • Diversity + Inclusion strategy
 5. Minimising    6. Supporting
   our impact        local         • Programmes to reduce energy,
   on the           communities      CO2, wood and paper usage, travel
   environment                     • Resource efficiency programmes
                                   • Community investment focussing
                                     on sustainable livelihoods 5
Sustainable Development in the Finance Sector
• Sustainability challenges – limited resources, energy constraints, environmental
damage, social inequities and poverty will impact our business environment and our clients.

• Role of the banking sector – recognising that banks have a role, with other finance
institutions and stakeholders, in the creation of a more sustainable future. Many have
commenced the journey to develop and integrate sustainability into their regular business

• Direct influence –        understanding where banking activities directly relate to
sustainability issues

• Decision-Making – integrating sustainability into lending, investment and risk
assessment to improve decision-making

• Products & Services – support the creation of innovative financial products and

An ongoing journey

  Value                                                     Business Development

                                       Equator Principles
                              Risk Policies

Destruction        Reactive

       Ignorance              Risk Management                       Strategic

ABN AMRO & RBS lead approaches to climate change

In January 2008, ABN AMRO was rated as second of forty banks in a CERES
survey of responses to climate change

In September 2007, RBS was rated as one of the three finance sector leaders in
the Carbon Disclosure Project

Addressing the carbon footprint of operations
ABN AMRO and its carbon footprint
Emissions of 414,720t CO2 in 2006
100% green electricity purchased in the Netherlands properties
Continues to introduce energy efficiency measures, e.g. automatic monitors switch off software,
movement-sensitive lighting
“Our Carbon Commitment” employee engagement programme

RBS and its carbon footprint
Emissions of 556,041t CO2 in 2006
100% green electricity secured for 2008-2010 in UK and Ireland properties
Has completed 1st phase of 3 year £55m investment in UK property to reduce footprint
Pilots emerging technologies in properties including solar roof tiles, biomass boilers, rainwater
recycling, roof mounted wind turbines, ground source heat pumps
“YourWorld” employee engagement programme
Aim is to reduce carbon intensity of operations by around one-fifth between 2007 and 2011

Decision-making in risk management
Environmental, Social & Ethical (“ESE”) Risk Filter
ESE risk governance model
ESE risk management capacity
Policies, procedures and practices

Global Banking & Markets Sustainable Development team
Developed and launched internal training programmes
Revisions to procedures manual and supporting programmes
ABN AMRO’s Environmental, Social & Ethical Risk Process
                                                             Prospective Business Engagement

                                                                            ESE Risk Filter

                                                                             Industry sector
                      Formal Assessment                                                                                   Informal Assessment
                 Business Values and Principles                                                                 List of other sensitive sectors / activities
                                                                              Specific issue
                Human Rights Position Statement                                                                           List of sensitive issues
                                                                              Track record
                            CSERF                                                                                       Client specific track record
                                                                            External record
                        Sector Policies                                                                               External information providers
                                                                            Overall concerns

   Environmental & Social Frameworks and Tools                               Ethical Policy                         Case Review Recommended

                                    Hydro                                                                      Animal         Supply chain
Oil & Gas   Mining      Forestry              Nuclear             Defence      Gambling        Tobacco                                              Others
                                    Dams                                                                       testing          issues

                                                                                            Key                Key                As                  As
  CDT        CDT        Template     EP         CDT           Template        Template
                                                                                          Questions          Questions         required            required

                                                           Advice by SRA and Business Unit Advisory Teams

                     Lending Activities: Credit Approval System                                 Non-lending Activities: Engagement Committee System

Climate change challenges the risk paradigm
• Climate change as a challenge for risk management and research

• What is the real risk profile?

    •   regulatory and other mitigation risks
    •   physical and other adaptation risks
• How to externalise the cost or value of carbon?

• Deployment of new evaluation filters?
• How to encourage greater client disclosure and engagement
• Revision of lending & investment policies

ABN AMRO’s climate change
                 regulatory risk project
  Identification of projects with large carbon price exposure the bank is financing.
  Focus on power plants, oil refineries, and steel manufacturer in both regulated and non-regulated

  Direct impact
     •   Run shadow scenarios for different prices of carbon and analyze the impact on the
         economics of the project.
     •   Determine the level of carbon price that makes the project an unattractive investment for the

  Indirect impact
     •   Identify the value chain impacts resulting from input / downstream costs and product risks.
     •   Integrate in the financial model to determine the adjusted risk/reward ratio of the project.

  Develop frameworks to support investment decision and mitigate the bank’s exposure to carbon risk.

Low carbon banking products & services
• It affects our clients – we need to understand how the issue will affect the bank’s
clients, whether it will change the way they operate, how, and in what ways we can assist

• Our clients require financing and other products and services – the Kyoto
and EU ETS regulatory environments have created trading markets of huge potential

• The capital needed for the low carbon shift is substantial – according to UNEP
an estimated USD100 bln was invested in new renewable technology in 2006

• Many ways to satisfy these needs fit with traditional banking competencies
– including: OTC & exchange-based trading; lending products; creation of funding vehicles
for renewable energy and clean technology; advisory services on listings and M&A

• The potential market size is even greater – some analysts suggest that current
renewable energy capital flows represent only 10-20% of total global energy investment.
Projections of up to USD 500-750 bln by 2015

ABN AMRO’s Eco-Markets business
ABN AMRO created Eco-Markets as a cross-discipline group to identify climate-
change and environment-related market opportunities and create financial
instruments and products that address them to support clients’ needs.
 • Emission trading
 • Corporate Broking
 • Structured finance
 • Private Investors Products
 • Equity Syndication

In 2007, ABN AMRO created a New Energy Technologies Group to further
strengthen its capabilities globally in renewable energy technology and capacity

RBS’s Renewables financing focus

• Renewable energy finance – in each of the last two years, RBS has
been among the top 3 worldwide largest arrangers of finance for the
renewable energy sector. It is the UK’s largest lender to renewable projects.

• Engagement strategy – focused on developing further the opportunities
to provide products and services to the clean technology sector

• Magnitude - in the last two years RBS has been involved in lead
arranging finance of more than $4bn for renewables globally

Where commercial banks fit in

Getting more commercial banking involvement
• Risk identification & management
           Political risk
           Commercial risk
           Technology risk

• Choosing the right entry point
           Discovery
           Development
           Demonstration
           Deployment

• Collaborations between key stakeholders
           Developers
           Early stage finance providers
           Offtakers and suppliers
           Commercial banks

Interaction with the academic sector

• Awareness and education – Cambridge Programme for Industry

• Sustainability-related research – EABIS

• Specific projects – Internship programmes & projects

• Sustainability strategies for banks require management across a
wide range of issues and stakeholders
• The transition to a low carbon economy adds complexity to risk
assessment and development of opportunities
• Commercial banks have a particular role to play in financing low
carbon technologies as they become commercially viable
• Products include lending, traded market activities and advisory
• Collaboration between a number of stakeholders helps to
accelerate low carbon technologies move to commercial viability


To top