Banking Report: HSBC is #1, US Banks Hampered by Lack of Climate Policy

This will come as no surprise: The European banking sector is responding much swifter to climate change risks and opportunities than its American counterparts.

The winner of this round of the battle of the banks? The UK-based HSBC. But take heed Frankfurt: All signs point to a US banking sector eager -- and willing -- to close the gap.

These are the findings of the latest report from the CERES investor coalition, Corporate Governance and Climate Change: The Banking Sector.

The first-of-its kind analysis took a hard look at the climate change governance practices of 40 of the world’s largest banks -- diversified banks, investment banks, and asset managers – and arrived at this conclusion:

The five highest scoring banks were all based in Europe – HSBC, ABN AMRO, Barclays, HBOS and Deutsche Bank – followed by Citigroup, Bank of America and the Royal Bank of Scotland.

Numbers aside, the report reveals something striking: The world is witnessing corporations considering climate change factors in their investment decisions, and it's becoming mainstream -- something that would have been impossible just three years ago. And despite the total laspe in US federal climate policy, America's major banks are beginning to move.

Take a look at the Bank of America. Its less than stellar CERES ranking masks the fact that it's a rising star. In its lending portfolio, it’s giving preference to utilities that are shrinking their emissions, and it has earmarked $20 billion in the fight against climate change. Citibank too. It began tracking emissions from utilities and one-upped Bank of America with a $50 billion climate investment. And you can bet these decisions weren't made for philanthropic purposes. These are banks. They are driven by profits, and they smell big earnings from climate-friendly investments.

And yet, the trans-Atlantic divide is still palpable.

Mindy Lubber, head of CERES, explains why: In America, carbon is still -- inexcusably -- free. And financial institutions can’t do their jobs well when carbon costs nada, especially when the other major economies have had clear price signals for years. The regulatory uncertainty in the US makes it exceedingly difficult for banks to make substantive financial decisions that they know will be a boon to their industry.

In Europe, it’s a different ballgame. Cap-and-trade has taken root, and carbon now costs just over 25 euros. It’s the exact market signal that financial institutions need to flourish. In the US, banks are hungry for it.

That’s why Bank of America, Citi, JP Morgan Chase, Lehman Brothers, Goldman Sachs, and Merrill Lynch have all called on Washington to pass federal climate change legislation that will give them the price mechanism they need.

These financial institutions get the climate change issue. They understand the risks of inaction. They know dirty fossil fuels are on the verge of obsolescence. And they're well aware of the financial opportunities a new energy economy presents their institutions -- and the risks they face in terms of losses to their competition if they don't begin to shift their policies right now.

It's only a matter of time before common sense trumps politics-as-usual in Washington and carbon gets a price tag. And when that day comes, expect the US banking sector to become a formidable driver in financing the next wave of global climate change solutions.

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