The Role of the Banking Industry in Facilitating Climate Change Mitigation and the Transition to a Low-Carbon Global Economy

Abstract

Against a background of regulatory uncertainty, this article contends that voluntary action by the banking industry has potential to facilitate climate change mitigation and the transition to a low-carbon economy. First, it evidences the relationship between the banking industry and climate change by focusing on three hallmarks of banking business, namely risk assessment, financing, and profiteering. Secondly, it shows how banks in their roles as creditors, investors, advisers and heads of supply chains can influence the business practices and greenhouse gas emissions of other corporate actors. Thirdly, it contends that exponential corporate emissions reductions could flow from bank practices that influence client and supplier networks in an ever-widening web. In so doing, this article also examines how environmental regulation – both soft and hard – can mobilise the full potential of the banking industry.

Keywords: climate change, banking industry, environmental regulation

JEL Classification: G21, G28, M14, O16, Q20