Brazilian banks score 3 on anti-climate change practices

Responsible Banking Guide evaluated Banco do Brasil, BNDES, Bradesco, BTG Pactual, Caixa Econômica Federal, Itaú Unibanco, Safra and Santander Brasil

Queimada e vista em meio a area de floresta proximo a capital Porto Velho. Foto: Bruno Kelly/Amazonia Real.

The largest Brazilian banks are failing to enforce relevant anti-climate change guidelines in their operations, in credit grants and in their investments. This is one of the results obtained by the study that underpins the tenth edition of the Responsible Banks Guide (GBR), a biannual publication released this Tuesday (5). The assessment was made based on the analysis of public documents – related to socio-environmental and climate issues – from these financial institutions.

This year, the banks’ average score in this topic was 3 in a ranking ranging from 0 to 10. Taking into account the 18 topics evaluated, the average was 3.3, that is, the banks comply with only 33% of the requirements of the GBR methodology, thus shedding light on the insufficiency of the actions implemented by these institutions to date.

The GBR project is coordinated by the Consumer Protection Institute (Idec), in a partnership with Conectas Direitos Humanos, Instituto Sou da Paz, Oxfam Brazil and World Animal Protection. The eight largest banks operating in the country were evaluated, accounting for 71.7% of the banking system’s assets: Banco do Brasil, BNDES, Bradesco, BTG Pactual, Caixa Econômica Federal, Itaú Unibanco, Safra, and Santander Brasil.

Climate change

Within GBR, the climate change topic takes into account the carbon footprint of financial institutions and the capacity of their portfolios to adapt to the 1.5°C scenario, observing international agreements. It also focuses on transition strategies to a low-carbon economy, including replacing fossil fuels with renewable energy sources. In addition, the project examines whether banks offer incentives to companies they invest in and finance in order to measure, disclose and reduce their emissions, as well as their ability to phase out financing and investments in activities with unacceptably high GHG emissions.

The Safra and BTG banks have not established their own emissions reduction targets in line with the 1.5ºC global temperature increase limit. Furthermore, they do not publish the inventory of greenhouse gas emissions from their credit and investment portfolios. Both these two banks and Caixa Federal lack phase-out strategies, that is, divestment strategies for mining, coal, thermal, oil and gas.

Banco do Brasil, BNDES, Bradesco, Itaú and Santander have exclusion policies and gradual financing phase-out strategies for projects and companies that mine, explore and develop coal mines, thermal mines, coal-generated energy, and unconventional oil and gas extraction.

Most of the banks assessed enforce these policies only to their financing, with the exception of Banco do Brasil and Itaú, which enforce restrictive policies to their own investments in the mineral and thermal coal sector. 

Furthermore, virtually none of the banks provide information on their absolute scope 1, 2 and 3 greenhouse gas emissions associated with their entire financing and investment portfolio. Without this type of information, tackling the problem becomes even more difficult. 

Financial institutions also neglect divestment commitments in critical sectors, such as oil and gas exploration. 

Another aspect that warrants attention is the absence of climate safeguards in relation to the management of own and third-party assets. While there are one or two commitments related to tackling climate change in credit and project financing policies, when it comes to investment portfolios, these same commitments are practically non-existent.

“Before deciding to invest money in a given project, the bank has the obligation to make a rigorous assessment of the risks that such financing represents for the people and natural resources that may be affected by it – and not for the investment itself. In the hypothetical case of financing for a meat company that raises cattle in deforested areas or with slave-like labor, the bank must respond for these violations to the same extent as the company it financed, since both benefited from the activity”, explains Julia Catão Dias, coordinator of the Sustainable Consumption program at Idec.

What are the possible conclusions?

The 2024 edition of the Responsible Banking Guide highlights the need for a renewed and effective commitment of Brazilian financial institutions with socio-environmental and climate issues. The current general scenario indicates a worrying gap in relation to the expectations of civil society and the urgencies imposed by the climate emergency and other socio-environmental crises we face, pointing to the need for the adoption of more rigorous commitments and guidelines by banks. 

Banks must add strict socio-environmental and climate criteria to their policies and, moreover, they must enforce, in practice, effective measures to prevent, mitigate and remedy rights violations resulting from the activities of the companies they finance or invest in.

Although both credit and project financing policies present weaknesses, the scenario is even more concerning for investment portfolios, which have very few guidelines. While credit commitments tend to be more stringent, investment portfolios lack robust policies, making their management considerably more lax.

Methodology

The Responsible Banking Guide applies the methodology developed by the Fair Finance International network and Profundo, a sustainability consulting firm based in the Netherlands. Financial institutions are also invited and encouraged to contribute to its improvement.

The public commitments made by financial institutions in relation to 18 topics are analysed, divided into three categories:

• Transversal topics: animal welfare; climate change; corruption; gender equality; human rights; labor rights; environment; taxes
• Industry topics: weapons; food; forests; mining; oil and gas; power generation
• Operational topics: consumer protection; financial inclusion; remuneration; transparency and accountability

Each topic has guidelines that financial institutions must make explicit in their policies and the bank is asked whether they are included in any of its public documents. If the answer is yes, the bank scores points. Otherwise, the grade is zero. 

This assessment is made not only in relation to the bank’s internal operations, but also for four categories of financial services: corporate credit, project financing, own asset management and third-party asset management.  The more comprehensive the commitment made by the bank, the higher the score for that element, and, consequently, for that topic.