Triodos Bank CEO: 'Bankers should be eco-warriors'

Presenting at the Bristol Distinguished Address Series, Dr Bevis Watts, chief executive of Triodos Bank UK spoke on the essential role banking must play in driving action on climate change.

Watts opened his address with optimism: “It feels like we’re finally waking up to the urgency of the climate and other environmental emergencies that we face. Banks have to be key to that action. They have to be driving the change and it is in their interests to do so.”

Signposting his lecture with a smattering of zoological metaphors, Watts explained that since de-regulation and consolidation during the late 1970s, “banking has behaved like a bull elephant seal, providing insufficient regard for the wider community in which it is operating, nor does it think about the externalities of the businesses and people it affects.”

The Triodos chief executive continued to say that the debate we need to be having is around what the role of banks in society should be and how they can become a force for good. However, in order for banks to act as a force for good they must recognise their “responsibility to keep people’s money safe and to use money this money in the long-term interest of their customers.”

Why should banks care? Reputation and image are a key areas of concern as campaigns such as Extinction Rebellion or Greenpeace, Friends of the Earth and WWF put a spotlight on banks’ slow response to environmental action and pressure them to divest in fossil fuels.

Calling on the example of PG&E, the US energy giant which filed for bankruptcy last year as it couldn’t meet the liabilities it faced following the Californian wildfires, Watts also outlined the ripple effect this filing had for all banks associated with the firm and the inherent connection between banks and the natural environment.

“This example is a fundamental business case for why banks should care. There are plenty of examples of why banks need to pay attention to not just climate change and climate related risk, but for air pollution, biodiversity loss, ocean pollution, soil degradation. All of these issues will create systemic risk issues which will come back to affect banks and their loan portfolios.”

Quoting a 2019 report by the Global Alliance for Banking on Values, founded by Triodos in 2009, Watts furthered that a push for action it isn’t only about mitigating risk.

The report, written in conjunction with Deloitte and the European Investment Bank, took the world’s top 100 systemic banks and compared their financial performance with environmental, social and governance performance (ESG).

"Banks with best ESG performance commercially outperformed the other banks. It is becoming beyond doubt that ESG responsibility actually leads to better performance of banks," the report read.

While Mark Carney has led impressive change at the Bank of England by ensuring the robustness of environmental risk assessment and facilitating climate stress-tests, Watts argued, we are only really at the foothills.

“The summit we need to get to is to recognise that banks actually have a role in creating those risks in the first place. We have to regulate banks in line with the level of societal risk they are creating through their activities. We must reshape banks and create a different ecosystem.”

Challenger banks also fall into this equation: “In reality what we are getting with challenger banks is more competition around rates, customer journey and service offering, but are we really getting anything different in terms of what new banks are bringing to the market? We need banks that are going to challenge the way banking is done, not just provide competition for competition’s sake.”

This re-shaping should touch on several areas, such as developing a common methodology for reporting standards such as the Partnerships for Carbon Accounting Financials, the adaption of regulation to provide clarity on how different banking activities are categorised, and how banks should negotiate with regulators the amount of capital they must hold against different industries depending on perceived risks.

Watts concludes that it is not only about pushing the responsibility onto financial institutions and regulators to promote change: “We need to make it as socially unacceptable to not know where one’s money is and what it is doing…we must take responsibility for our money and really understand what it’s doing at the individual and organisational level.

“Money and our banking system is not something of nature, it is not a given. It is something created by us that we can change and evolve to serve a more fair and sustainable society that I think we all deserve.”

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