Big Six banks can be big climate resiliency players

Earlier this year, Change Course, Stand.earth and Canada’s National Observer launched the first annual Climate Finance Scholarship Contest, an opportunity for young people across Canada to showcase and share visionary, solutions-oriented essays that reimagined the role of Canada's Big Six banks and other powerful financial institutions in our communities. Each of the two contest winners won $2,500 scholarships for written or multimedia submissions. Mimi O’Handley used her winning essay to challenge financial institutions to reinvest in solutions to help combat the climate crisis. Our second winner, Diana Yoon, proposed an innovative model that financial institutions could consider.

We will also feature three other top entries. Earlier this week, we began with Annabelle Liao, who argued institutions must work harder to make their investments more sustainable. In this essay, Mariam Kapanadze weighs in with specific suggestions financial institutions could heed to reduce their carbon footprints.

Building a climate-safe, democratized financial system requires a holistic approach that addresses both environmental sustainability and equitable access to financial services. Here are some key proposals that could be implemented by financial institutions such as the Big Six Canadian banks over the next three to five years.

How to build a climate-safe, democratized financial system

Mandate rigorous carbon accounting and disclosure of all lending and investment activities. This means evaluating the carbon footprint of financed projects and companies and disclosing this information to investors and the public. Implementing transparent reporting standards will enable stakeholders to make informed decisions and hold banks accountable for their climate impact.

Integrate climate risk assessment and stress testing into the banks' risk management frameworks. This involves evaluating the financial risks associated with climate change, such as physical risks (e.g., extreme weather events) and transition risks (e.g., policy changes and market shifts). By incorporating climate risk analysis into lending decisions, banks can better safeguard their portfolios and contribute to a more resilient financial system.

Increase support for green finance and sustainable investments. This includes expanding financing options for renewable energy projects, energy-efficient infrastructure and sustainable businesses. Banks can develop specialized products such as green bonds, green loans and sustainability-linked financing to incentivize investments in climate-friendly initiatives.

Enhance corporate governance structures to prioritize climate considerations. This involves integrating climate-related metrics into executive compensation frameworks, incentivizing management to pursue sustainable practices. Banks can also adopt climate-aligned voting policies for their investments, using their shareholder influence to encourage companies to adopt environmentally responsible strategies.

Foster community engagement and promote inclusive finance initiatives. This includes providing financial services to underserved communities, particularly those disproportionately affected by climate change. Banks can develop tailored products and services, such as microfinance for small-scale renewable energy projects and green lending programs for low-income households.

Collaborate with industry peers, regulators and stakeholders to drive collective action on climate change. This involves sharing best practices, participating in industry initiatives and engaging in dialogue with policymakers to advocate for supportive regulatory frameworks. By working together, banks can amplify their impact and accelerate the transition to a climate-safe economy.

The role of financial institutions in a just transition

Financial institutions such as banks, pension funds, insurance companies control vast amounts of capital that can be directed toward renewable energy projects and away from fossil fuel investments. By reallocating funds from high-carbon to low-carbon assets, these institutions can accelerate the transition to renewable energy while mitigating climate risks.

Financial institutions assess and manage various risks associated with their investments, including climate-related risks. By divesting from fossil fuels and investing in renewable energy, they can reduce exposure to stranded asset risks associated with declining fossil fuel reserves and regulatory shifts.

These institutions have significant influence as shareholders and lenders. They can engage with fossil fuel companies to push for greater transparency, accountability and alignment with climate goals. Moreover, they can advocate for supportive policies and regulations that incentivize renewable energy investments and phase out fossil fuel subsidies.

Financial institutions can drive innovation in renewable energy technologies by providing financing and investment support to startups and clean energy companies. They can develop innovative financial products such as green bonds, renewable energy loans and impact investment funds to channel capital into climate-safe solutions.

Through capital allocation, risk management, advocacy, innovation, stakeholder engagement and a commitment to long-term sustainability, financial institutions can catalyze positive change and contribute to a more resilient and sustainable future.

Building more climate-resilient communities

Financial institutions can adopt a justice-based approach that prioritizes frontline communities. Here's how they can do so:

Financial institutions can prioritize investments in projects that benefit frontline communities, such as affordable housing developments, public transit infrastructure, renewable energy projects and green spaces. These investments should be tailored to address the specific needs and priorities of each community, with meaningful input and participation from community members.

It's also important to ensure equitable access to financing for climate-resilient projects in frontline communities. This includes offering affordable loans, grants and other financial products tailored to the needs of community-based organizations and small businesses working on climate solutions. Financial institutions can also provide technical assistance and capacity-building support to help these organizations access and manage financing effectively.

Forging partnerships with community-based organizations, Indigenous groups and grassroots movements working on climate justice and community resilience is also beneficial. By collaborating with these organizations, financial institutions can better understand local needs and priorities and ensure that their investments align with community goals.

Financial institutions can support the return of Indigenous land through investments in land restoration, conservation and community-led land stewardship initiatives. They can also prioritize financing for Indigenous-owned businesses and sustainable economic development projects that respect Indigenous knowledge and values.

Financial institutions should assess the social and environmental impacts of their investments, prioritize projects that promote equity and justice and avoid investments that perpetuate harm or exacerbate existing inequalities.

Finally, they can ensure transparency and accountability in financing decisions and project outcomes by publicly disclosing information about their investments, including the social and environmental criteria used to evaluate projects and their impacts on frontline communities. They should also engage in regular dialogue with stakeholders, including community members, to solicit feedback and address concerns.

By adopting these measures, financial institutions can play a critical role in building climate-resilient communities that prioritize justice, equity and well-being. This approach not only helps address the disproportionate impacts of climate change on marginalized groups, but also contributes to a more just and sustainable future for all.

As a climate and environmental justice advocate, Mariam Kapanadze is passionate about sustainable development and social equity. With expertise in human resources and international relations, she brings a unique perspective on finance, climate resilience and community empowerment.