There is incontrovertible scientific proof of global warming. Global warming will have a gradual and signifi-cant impact on economies and markets and on society. Climate change threatens the basic elements of hu-man life, food production, health and use of resources and the environment. Environmental sustainability has therefore been a central aspect of the world energy situation since the late 1990s, when it became clear that a new, environmentally and climatically sustainable economic and industrial growth model was needed. The measures taken include the Kyoto Protocol (drafted in 1997 and came into effect in 2005), which established targets for reduction of emissions, laying the foundations for a decarbonisation policy strongly supported by Europe, particularly over the last decade.
More recently, the Paris Climate Agreement of December 2015 (COP21), which came into effect in 2016 and was adopted by 197 countries, defines a global and binding plan of action for limiting global warming to below 2 °C and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels.
Focusing attention on the European Union, the Clean Energy Package, presented at the end of 2016, provides a framework of EU legislative proposals, highlighting how Europe is in the forefront in the fight against climate change. The main proposals relate to:
✓✓ development of renewable sources, with proposed achievement of the 20-20-20 targets, the new 27% renewable sources penetration target on gross final consumption in the EU by 2030;
✓✓ development of electricity markets (“Electricity Market Design”);
✓✓ increased energy efficiency;
✓✓ creation and governance of the Energy Union; ✓✓ the work plan for eco-design;
✓✓ sustainable mobility.
Several studies and analyses also suggest that climate change and environmental risks have major implica-tions for financial stability which must be considered. European banks have already started on a virtuous path towards tangible support of EU policies for a more sustainable financial system. The various issues being ex-amined by the Task Force on Green Finance of the European Banking Federation, in which ABI Lab participates on behalf of the ABI, include:
✓✓ the need to establish a sustainable assets classification system. In particular, the need to set up a Europe-an classification of financial products comprising all existing and “acceptable” definitions of “sustainabili-ty” was raised;
✓✓ detailed examination of the concept of “fiduciary duty” which also covers the sustainability factor. The Eu-ropean debate has highlighted the need to establish a single set of “fiduciary duty” principles and concepts of “loyalty” and “prudence”;
✓✓ the need to widen “disclosure” for sustainability. Particular emphasis is placed on the need to strength-en reporting and disclosure of material information by enterprise and financial institutions on issues of sustainability. In 2014, the European Union passed Directive 2014/95/EU on disclosure of non-financial information by certain large undertakings and groups (transposed into Italian law by Legislative Decree 254/2016), which also affects numerous Italian banks;
✓✓ the need for correct monitoring of all environmental risks in bank credit and investment activities; In order to deal with these risks, which are classified as physical, accountability and transition risks, it would be both interesting and appropriate to establish an “Environmental and Climate Change Screening” method.
The Italian regulatory procedure forms part of the European context described above. The important steps tak-en include the 2017 issue by the Ministry for Economic Development and the Ministry of the Environment and Protection of the Territory and the Sea of the National Energy Strategy (SEN), which expressed the needs to increase competitiveness of the country by aligning domestic energy prices with European prices, to improve security of procurement and supply and to decarbonise the energy system in line with the long-term targets of the Paris Agreement.
In response to the public consultation, ABI Lab fully supported the strategic objectives identified by the SEN, emphasising how banks have also focused on the issues of energy efficiency, renewable sources and sustaina-bility in general, both in their role as financiers and also as the operators of a large building stock distributed throughout the entire country.
The activities of Italian banks to support the green economy, and energy efficiency in particular, include partic-ipation in the “Banks in support of energy efficiency and RES” survey performed by ABI Lab, as part of the work of the Banks and Green Economy Observatory, with the objective of analysing:
✓✓ the characteristics of financial products offered by banks for energy efficiency; ✓✓ the main target customers;
✓✓ the main organisational aspects at the bank to support assessment of loans for performance of energy ef-ficiency initiatives;
✓✓ any aspects of the regulatory framework which could assist financing of energy efficiency initiatives; ✓✓ planned investments in energy efficiency and in Renewable Energy Sources.
10 banks/banking groups took part in the survey, representing over 70% of the sector in terms of total assets. It emerged that most of the respondents have introduced specific financing products, of which 41 are dedicat-ed, in particular, to the following four customer targets:
✓✓ Industry: SMEs / Mid-CAP; ✓✓ Industry: Large firms;
✓✓ Services (Hotels, the Large-Scale Retail Trade, Sports Centres, Transport, etc.); ✓✓ ESCo (Energy Service Company) for initiatives with customers.
In addition to this, 62% of the respondents to the specific query are assessing whether to introduce new financing products for the sector.
As far as concerns the regulatory framework (taxation, regulations, incentives, etc.), 60% of the total sample perceives a high or very high level of instability; when asked which regulatory initiatives would support the design and use of new financing instruments for energy saving initiatives, the banks indicated:
✓✓ the creation and start of “Basel compliant” guarantee funds (such as the national energy efficiency fund currently in the start-up phase);
✓✓ simplified and clearer regulations, such as those relating to granting of energy efficiency certificates; ✓✓ structural aid with long-term provisions.
It emerged from the replies received that targeted allocation of public resources could boost energy efficiency financing: 71% of the respondents to the specific query has established or plans to establish financing products for initiatives supported by public aid, with particular focus on tax deductions. Furthermore, concerning the processes of supply of energy efficiency financing, the banks included as elements which facilitate this:
✓✓ the chance to increase the size of the investment and thus reduce the incidence of the costs for technical assessment of the initiative;
✓✓ the guarantee that the activity to which the energy saving relates will continue over time.
In conclusion, the survey also focused on Renewable Energy Sources, highlighting how, in 2016, banks repre-senting around 40% of total sector assets disbursed/signed loans for RES totalling over Euro 2.3 billion.
The technologies which would appear to be of the greatest interest for banks for future investments in this segment are:
✓✓ on shore wind farms;
✓✓ run-of-river hydroelectric plants; ✓✓ bioenergy (biomass/ biogas).
The banking sector also focuses attention on the issue of energy and the environment in terms of direct im-pacts. Banks manage a vast building stock, formed of branches, central offices and data processing centres located throughout the country. The innovations introduced in 2017 here include the new ABI Lab guidelines for the introduction of energy diagnosis measurement methods in the banking sector, drafted jointly with ENEA, as part of the work of the ABI Lab Observatory on Green Banking. The guidelines, which have been set out to focus on the measurement activities of most interest to banks, providing a flexible but clearly structured guide for extrapolation of the performance indicators to use in the sector benchmark after energy diagnosis has been performed.
The strong presence of banks in management of direct impacts also results in optimised management of the energy purchasing process. This management involves the use of “structured” purchasing models which allow the energy needed for their different consumption sites to be purchased at different times of year, thus mini-mising the risk from closing the contract at a time when market prices are unfavourable. Banks are supported in identifying the best times for purchase by ABI Lab, which constantly monitors the physical and financial energy markets as part of the work of its Electricity and Gas Markets Observatory.
During 2017, banks also focused particular attention on environmental impact reporting, partly due to the im-minent deadline envisaged by Leg. Decree 254/2016, which will require several public-interest entities to pub-lish a non-financial declaration. In order to identify the average reference values for the banking sector, ABI Lab has started a survey on the direct environmental impacts for 2016, reported by banks using the environment indicators envisaged by the Global Reporting Initiative Guidelines v. G4. Nine banks/banking groups, represent-ing around 58% of the sector in terms of total workforce, participated in the survey, which analysed various as-pects of reporting, including use of materials, energy consumption and climate-altering gas emissions into the atmosphere. For the 5 banks which also participated in the survey in 2016, it was possible to compare the data against the figures for 2015.
This demonstrated, among other things, a 7.4% reduction in paper consumption per employee and a 3.1% reduction in energy consumption per employee within the organisation. It was also possible to estimate a reduction of 48,693 tCO2eq in emissions obtained by a further sample of 5 banks through various initiatives (energy efficiency initiatives, purchase of high-efficiency products, redesign of company consumption reduction processes, employee information and awareness campaigns, etc.), with an average reduction of around 0.48 tonCO2eq per employee.
In conclusion, the experience of banks in energy-environmental management of their assets, in terms of iden-tification of energy efficiency solutions and management and reporting of the principal environmental indica-tors, represents a huge source of knowledge which the bank itself could also channel towards definition of new products and new investments for development of the green economy. AS Europe confirms its commitment to numerous activities aimed at establishing environmental, social and governance policies and initiatives, Italy is also now faced with a strategic opportunity to align its own financial system with sustainable development. It is therefore necessary to introduce instruments which make the financial sector sustainable, which will iden-tify new areas of growth and new methods for increasing the solidity of financial institutions, as well as new financial products for customers.
ABI Lab would like to thank the banks which responded to the ABI Lab surveys “Banks in support of energy efficiency and RES” and “2015 Sustainability Reporting – Environmental Indicators of the GRI V. G4” and all the banks participating in the Banks and the Green Economy, Green Banking and Electricity and Gas Markets