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Carlos Barrientos, director of Sustainable Business and Financing at Bankia.

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Carlos Barrientos, director of Sustainable Business and Financing at Bankia

"The banking industry must finance the change in the productive model of companies and in the consumption of households towards a sustainable economy"

The director of Business and Sustainable Financing of the entity presented his current vision about the green economy, stating that it is a real challenge for the financial sector.
 

Bankia Comunicación

By  Bankia Comunicación

Publish on 
21 February 2020 - 12:30

  • He took part in the 'Second Annual Meeting on Sustainable Financing', held by the Spanish Observatory of Sustainable Financing (OFISO)
  • He defended the concept of 'fair transition': "We have to help companies and households whose income depends on less sustainable activities to manage their transition to a green economy, avoiding disruptive effects"

"Banks must channel and facilitate financing to face the shift towards a sustainable economy, both in the productive models of companies and in the consumption habits of households" said Carlos Barrientos, director of Sustainable Business and Financing at Bankia.

Barrientos, who has participated in the Second Annual Meeting on Sustainable Financing, held by the Spanish Observatory of Sustainable Financing, has defended the concept of 'fair transition': "It is very important that the transition towards a green economy does not cause a disruptive effect on companies and households whose income depends on less sustainable activities. In this regard, we will also have to help those affected to manage their transition ”.

Currently, there is a lot of financial regulation regarding the transition towards a carbon-free economy (the Action Plan of the European Banking Authority, the Taxonomy of the European Union, regulation on disclosure of information, among other examples) that is being prepared. Despite this, “banks are already conducting a review in order to structure our admission processes and explain clearly how we are including environmental, social and governance (ESG) criteria. And all of this within the context of environmentally and socially responsible management models", said Barrientos.

In this regard, "while measuring climate risks is relatively new that has caused the industry to reassess how to apply new criteria to its management and business models, financial institutions have been taking into account some ASG factors when granting loans”, said Barrientos. Among them, he pointed out “the environmental impact of project analysis”.

Regarding climate risks, "European banks are currently working on an Advisory Paper of the European Banking Authority (EBA) on credit sources and monitoring", said Barrientos. In this document, the EBA introduces 'green lending dimension' and urges financial institutions “to assess physical risks and transition risks, because both can become financial and economic risks that may affect solvency”.

This effort to define and standardise physical and transition risks in the admission of operations "is the greatest challenge for financial institutions at the time," said Barrientos. But it is not the only one. Another challenge is the one derived from the application of the European Union Taxonomy, a regulation that is pending approval and that will establish the rules to determine the impact on climate change of certain activities that can thus be deemed sustainable activities.

The Taxonomy "will force banks to collect and manage information about customers that we have never collected so far," said Barrientos, who added that "entities are used to managing customers’ financial information, their balance sheet and their income statement, but, for instance, not the level of CO2 emitted per ton of finished product or the square meters dedicated to a given crop".

"This is the type of metrics that the Taxonomy will have to measure and on which it will establish thresholds or maximum levels above which the activity will not be eligible as sustainable", said the director of Sustainable Business and Financing at Bankia. Therefore, “banks will have to be prepared to collect this information in our systems if we want to know and report what part of our financing activity is aligned with the Taxonomy. In other words, it contributes to mitigation, adaptation or all other environmental goals".

The analysis associated with this challenge "must be used as a tool to identify opportunities for improvement in production standards" and, as a consequence, "to induce investment and financing that contribute to the reduction of greenhouse gas emissions", added Barrientos. For all these reasons, Bankia’s Director of Sustainable Business and Financing was convinced that “the transition towards a green economy will be a great opportunity and an unavoidable commitment for the financial industry”.

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