Climate Change Strategic Actions in the International Banking Industry

Abstract

This article investigates the actions of international banks related to climate change adaptation. A theoretical framework was developed to assess bank climate change strategic actions based on five categories: management commitment, emissions reduction, product development, organizational involvement and external relationship development. A sample of international banks from 15 countries in four regions was analysed. Significant differences were found in the level of climate change strategic actions by banks across regions. North American banks had the highest scores on management commitment and product development. Australian banks were the top performers in external relationship development. European banks were ranked first in emissions reduction. Asian banks received the lowest score in all the categories of climate change strategic actions. The research is a unique comparative exploratory study of the strategic actions taken to address climate change in the international banking industry. The theoretical contribution of this article is its link between the theory of organizational adaptation and the climate change actions that banks practice. The research is beneficial for bank executives to develop effective environmental actions that will increase climate change mitigation and adaptation globally but particularly in Asia, which is the critical region for climate change actions.

Keywords

Climate change banking sustainability environmental management climate change adaptation climate change strategic actions

Introduction

Climate change and the need to protect the environment are increasingly recognized as the fundamental challenges for businesses (Hoffman & Woody, 2008). The impact of climate change on companies and society has intensified (Kolk & Pinkse, 2005; Stern, 2007). Over the past century, the average global temperature has increased by more than 0.7°C and will continue to rise, with projections of 0.5°C to 5°C per decade (IPCC, 2013). Increases in the average global temperature, changes in precipitation patterns, rising sea levels, drought and massive increases in weather-related natural catastrophes are consequences of climate change (IPCC, 2013). The major drivers of climate change are the increased concentration of greenhouse gases (GHG) in the atmosphere, including the emissions of methane (CH₄), carbon dioxide (CO₂) and nitrous oxide (N₂O). Stern (2007) reported that the amount of GHG emissions in the global environment has almost doubled and continues to increase. The acceleration of GHG emissions worldwide is related to energy consumption and transportation.

The World Business Council for Sustainable Development identifies the financial industry as an important sector for increasing sustainability. To promote corporate accountability, transparency, climate change mitigation and sustainability, various leading financial institutions such as the United Nation Environmental Program Financial Initiative (UNEPFI), the United Nation Global Compact (UNGC), the Equator Principles, the United Nations-supported Principle for Socially Responsible Investment (UNPRI) and the International Finance Corporation Standard are now obliged to comply with international standards and codes of conduct. NGOs such as Bank Track and the Rainforest Network review the banking industry to increase accountability and ensure that bank operations will make a positive contribution to society and preserve the ecological wellbeing of the planet.

To investigate how banks have adapted to the problem of climate change, researchers have examined the actions and strategies of banks in response to environmental issues (Bihma & Nhamo, 2013; Bowman, 2010; CERES, 2008; Furrer, Hamprecht, & Hoffman, 2012; Jeucken & Bouma, 1999). Research on banking and climate change has been limited, as prior research conducted on climate change has primarily focused on manufacturing-related industries (Balon, Sharma, & Barua, 2016; Kolk & Pinkse, 2005; Lee, 2012; Sprengel & Busch, 2010; Weinhofer & Hoffman, 2010).

The structure of this article is as follows. It begins with a discussion on the topic of climate change and the banking industry, followed by research objectives. An explanation of the theoretical framework and research methodology is given in the next section. After this the results of the study are presented. Finally, the conclusions and implications are discussed.

Review of Literature

Climate Change and the Banking Industry

Bowman (2013) describes the relationship between banks and climate change as interdependent: Climate change can have an impact on banks directly and indirectly. Banks can also contribute to the problems of climate change. The three major roles played by the banking industry that relate to climate change include the capital providers, risk assessors and shareholders (Bowman, 2010). As the capital providers, banks have the power to supply or facilitate financing for GHG-intensive projects as well as to support clean energy initiatives. As risk assessors, banks can demand increased risk disclosure associated with climate change from companies. Banks also price risk, predict a firm’s profitability and determine investment preferences in an increasingly carbon-constrained world. As shareholders, banks can influence corporate management and climate-related governance. The actions and decisions that are made (or not made) by banks with regard to corporate carbon strategies impact climate change, either to reduce levels of GHG or to increase emissions. The banking sector has been late to respond to sustainability and climate change. There has been a lack of general understanding about climate change and its impacts on bank operations (Carbon Disclosure Project, 2013; CERES, 2008). From a survey that was conducted by MIT’s Sloan School of Management in 2013, only 6 per cent companies fully address the environment as a significant sustainability issue (Kiron, Kruschwitz, Haanaes & Velken, 2012). According to the Global 500 Climate Change report, 2013, the financial sector received the lowest score in terms of climate change performance compared with other industries. While other industries have successfully reduced the amount of GHG emissions, the financial sector increased GHG emissions by 4.2 per cent. Furrer, Hamprecht, and Hoffman (2012) finds evidence of a lack of bank policies on climate change because few banks have taken substantive actions to implement climate change strategies. Bank Track (2014) noted that the number of coal projects in the financial industry is still increasing. Global banks are still the major financial sources for the energy industry.

Despite the essential role of banks in promoting sustainability, research in relation to the mitigation and adaptation for climate change in the banking industry is limited. Most sustainability research on banks focus on the issue of corporate social responsibility (CSR) and CSR disclosure (Hoepner & Wilson, 2010; Hu & Scholtens, 2014; Kapoor & Sandhu, 2010; Khan, Halabi, & Samy, 2009; Krasodomska, 2015; Scholtens, 2009; Weber, Diaz, & Schwegler, 2014; Wu & Shen, 2013).

Organizational Adaptation to Climate Change

There is a growing concern that adaptation of the organization is critical to reduce the impacts of climate change. Changes in global climate system constitute substantial disruptions within the organization’s surrounding environment (Busch & Hoffmann, 2007). The possible impacts of these disruptions on the business environment and organizations include impact on resource supply, production process, product distribution and physical damages caused by changes in climatic condition (Acclimatise, 2006; Schwartz, 2007; Sussman & Freed 2008; Van Bergen, 2008). Therefore, it is necessary for organizations to proactively adapt to climate change (Linnenluecke, Griffiths, & Winn, 2008).

Organizational adaptation has been defined as a gradual, prolonged and incremental change process of an organization in response to an external pressure from the business environment (Tushman, Virany, & Romanelli, 1985). Most of the studies on organization adaptation have been undertaken from the perspective of strategic choice. According to the strategic choice perspective, decision-makers attempt to formulate strategic responses to adjust change by modifying the firm’s operational capabilities or production capabilities (Child, 1972; Mile & Snow, 1978). Firms with an adaptive design will be able to survive, otherwise they will be driven out of the market. Prior research on organizational adaptation focuses on choices that are related to technological, political, economic, regulatory and socio-demographic change. Studies of organizational adaptation to changes in the natural environment such as climate change and extreme weather events have often been neglected. Linnenluecke, Griffiths and Winn (2013) identified 314 studies in business and management field on climate change but only 38 articles with a specific focus on adaptation. Out of 38 articles of business adaptations to climate change, the focus is mostly on sectors such as tourism, manufacturing, automobile, electricity and agricultural (Bank & Wiesner, 2011; Busch, 2011; Fleischer, Mendelsohn, & Dinar, 2011; Haigh & Griffiths, 2011; Kaine & Cowan, 2011). Studies of adaptations in banking are still limited (Nitkin, Foster, & Medalye, 2009).

Climate Change Strategic Action Framework

To promote sustainability, organizations are required to actively adapt to the issue of climate change by creating effective climate change strategic action. Weinhofer and Hoffman (2010) and Furrer, Hamprecht, and Hoffman (2012) define climate change strategic action as a pattern of activities to address and cope with climate change and the management of both direct and indirect of GHG. Scholars attempted to create a climate change strategic actions framework based on a set of climate-change-related activities that organization engaged in (Jeswani, Wehrmeyer, & Mulugetta, 2008; Lee, 2012; Weinhofer & Busch, 2013). Kolk and Pinkse (2005) study the strategic choices in response to climate change of 135 large companies in the global 500 and classify climate change strategic actions into six categories: process improvement, emission reduction, product development, supply chain management, new product and acquisition of emission credits. Moreover, Lee (2012) analyses climate change strategic actions of firms in South Korea based on six categories of climate change activities: emission reduction commitment, product improvement, process and supply improvement, new market and business development, organizational involvement and external relationship development.

Prior studies indicate that sustainable performance within the organization required the involvement of different functions within the organization to create effective climate change strategic actions. A climate change strategic actions framework used to assess banks includes five categories of activities. These are management commitment, emissions reduction, product development, organizational involvement and external relationship development.

Management commitment indicates how actively a board of directors and management executives engage in a climate change policy and monitor the progress of climate change strategies (CERES, 2008). The top management can influence the direction of a company’s environmental policy and social responsibility practice (Quazi, 2003; Swanson, 2008). Personal commitments of individuals at the management level or decisions-makers also found to have influences on the environmental policy of the organization including actions in relation to climate change (Carter, Kale, & Grimm, 2000; New, Hulme, & Jones, 2000). Management commitment of banks refers to the actions from the board of directors and top management executives in mitigating the problem of climate change.

Besides management commitments, banks also require to pursue an effective emission reduction policy. Emission reduction policies refer to the set of actions that aim to actively reduce the emission of direct and indirect GHG (CERES, 2008). These involve setting GHG reduction targets as well as preparing quantitative measures of emission savings and offsets from operations (Hoffman, 2007; Lash & Wellington, 2007; Lee, 2012). There is also a strong need for monitoring and verifying GHG emission data to ensure that the implementation of a policy is accomplished effectively (CERES, 2008).

Along with adopting a specific emission policy, the development of specialized financial products or services is also necessary (Boston Common Asset, 2014; Furrer, Hamprecht, & Hoffman, 2012). Specialized financial products are climate-change-related products offered by a bank. These include carbon and climate loans, green investment products and special advisory services to assist consumers with adaptation and the mitigation of climate change. Carbon and climate loans are financial services provided by banks at a lower price to incentivize clients to cut emissions or to support low-carbon investment projects (e.g., clean technology and renewable energy). These also include climate-change-investment-related products such as green bonds, sustainability bonds and ecological funds.

The involvement of employees within the organization is also crucial for reducing the impact of climate change. Organizational involvement in climate-change-related activities focuses on increasing the awareness and commitment of employees with respect to the firm’s response to climate change (Jeswani et al., 2008; Lee, 2012). This involvement is the catalyst in driving organizational change to become more sustainable by helping managers and operational employees to reduce the impact of climate change (The Climate Group, 2010). For example, in Australia, Westpac and ANZ provide sustainability risk training for managers, boards of directors and employees to help them understand the impact, risk and opportunities of climate change. In Europe, to help employees understand the issues of climate change, Lloyds Bank created an Energy Bible for internal use that contains detailed guidance on energy consumption and emissions reduction. Credit Suisse also launched a ‘Bike to Work’ campaign as part of their ‘Care for Climate’ initiatives. Apart from training to create awareness of climate change, organizational involvement includes investments in facilities to reduce the carbon footprint. Banks can replace fossil fuels with renewable energy sources and invest in green facilities that are certified by environmental building standards such as LEED (Leadership in Energy and Environmental Design) or BREEM (Building Research Establishment). Activities related to banks’ supply chains also need to be considered. Banks are starting to implement comprehensive programmes and initiatives to improve their environmental performance across their entire supply chain. Environmental practices that promote a sustainable supply chain include environmental collaboration, environmental monitoring and green purchasing. For example, Deutsche Bank incorporated sustainability considerations into their sourcing and requirement by supporting green supply chain initiatives and creating codes of conduct for suppliers.

According to Finle and Schuchad (2011), one of the key roles for the financial sector in adapting to climate change is to collaborate with key stakeholders. Collaboration involves working together with community, external stakeholders and customers. Based on the social capital theory, a community not only has physical capital and economic capital but also social capital (social networks and community organization), which can enable cooperative actions towards a common goal (Hutchinson et al., 2004; Putnam, 2000). Therefore, banks are required to develop strong external relationship with the external stakeholders as it is necessary to create greater understanding of climate change. External relationship development refers to the cooperation for climate initiatives such as participating in voluntary programmes, international standards or code of conduct set by the government or non-government organization (Jeswani et al., 2008). External relationship development also includes activities to support community projects that aim to address climate change mitigation and adaptation.

Research Objective

The objective of this research is to formulate a theoretical framework and methodology to assess the level of climate change strategic actions in the banking industry. The framework provides guidelines for bank managers seeking to create effective environmental policies that support climate change mitigations and adaptation. This article also examines the level of banks’ strategic actions to address climate change in different regions using both quantitative and qualitative analyses.

Methodology

This research employs a mixed-method approach combining qualitative content analysis with statistical analysis to investigate banks’ climate change strategic actions. Content analysis is a systematic, replicable technique that reduces text into categories based on explicit coding (Krippendorff, 2012; Weber, 2008). Content analysis is useful in environmental studies because research in this area relies heavily on publicly available data. In this research a priori coding is used based on the theoretical framework. ‘Keywords in context’ is a content analysis approach that reveals how important concepts are emphasized in the data. Information related to banks’ climate change actions is selected from publicly available data such as sustainability reports for 2013, websites and annual reports. A bank’s climate change strategic actions are evaluated based on five categories of commitment: management commitment, emissions reduction, product development, organizational involvement and external relationship development as presented in the framework in Figure 1.

Based on the climate change strategic action framework, the content analysis coding scheme is presented in Table 1.

Figure 1.

Sources: CERES (2008), Lee (2012), Furrer (2012), Jeswani et al. (2008) and Hoffman (2005).

The coding scheme consist of 20 items, classified into five categories: management commitment (five items), emissions reduction (four items), product development (four items), organizational development (three items) and external relationship development (three items). To assess the extent of climate change strategic action of a bank, a score of 1 is given, 1 for an item that exists and if it does not. To assess item 1 for management commitment, the ‘board is actively involved and the website of annual report or sustainability report is reviewed for information on the board’s involvement. For each factor, the score for every item is summarized. The degree to which the banks are adapting with climate-change-related actions is calculated by summarizing the total score of 20 items. The t-test and an analysis of variance (ANOVA) are used to compare the level of bank strategic actions across countries and regions.

In addition, data from 25 banks are randomly selected to test inter-rater reliability. The Kappa statistic is performed to determine the consistency, and the result shows substantial agreement at Kappa = 0.67 (p < 0.001).

Table 1.

Content Analysis Coding Scheme

Categories	Description	Strategic Actions
1. Management Commitment	How actively a board of directors and management executives engage in climate change policy and monitor the progress of climate change strategies	1. Board is actively engaged in climate change policy and has assigned oversight responsibility to board members2. Chairman/CEO assumes leadership role in articulating and executing climate change policy.3. Top executives and/or executive committees are assigned to manage strategies for climate change4. Climate change initiatives are integrated into risk management and mainstream business activities.5. Executive officers compensation is linked to attainment of environmental goals and GHG targets	Yes or NoYes or NoYes or NoYes or NoYes or No
2. Emission Reduction	The degree to which a bank to actively reduce the amount of direct and indirect GHG emissions	6. Bank pursues business strategies to reduce GHG emission7. Bank calculates and registers GHG emissions savings and offsets from operations.8. Bank sets absolute GHG emissions reduction target for facilities, energy use, business travel and other operations.9. Bank has third-party verification process for GHG emissions data.	Yes or NoYes or NoQuantitative or QualitativeYes or No
3. Product Development	Specialized climate products or services that are offered by banks that contribute to their clients’ emissions reduction	10. Bank offers green financial products: Green bonds, sustainability bonds, ecological funds and carbon-related investment products.11. Bank offers carbon loans: Lending/financing, property financing/ mortgages at lower pricing to clients reducing carbon emissions12. Bank offers climate loans: Lending/financing, property financing/mortgages at lower prices for use of clean technology and renewable energy sources13. Bank offers climate advisory services: Special advisory services related to carbon management/climate change	Yes or NoYes or NoYes or NoYes or No
4. Organizational Involvement	Carbon management activities that increase the actions of management and employees with respect to reduce climate change impacts	14. Bank provides training / workshop/campaign within the organization to raise employee’s awareness on climate change in general15. Green Building/ Energy efficiency building/LEED/BREEAM certification on buildings16. Green purchasing/ Sustainable Supplier	Yes or NoYes or NoYes or No
5. External Relationship Development	Cooperation for climate change initiatives, for example, bank engagement with other stakeholders.	17. Memberships and active participation in investor coalitions (e.g., CERES, CDP, UNEPFI)18. Support community affairs project aiming at climate change mitigation and adaptation19. Adoption of Equator Principal20. Certified environmental management system (ISO14001)	Participated (Yes or No)Yes or NoAdopted (Yes/No)ISO14001

Sources: CERES (2008), Lee (2012), Furrer (2012), Jeswani et al. (2008) and Hoffman (2005).

Analysis

The sample consists of 50 international banks from four different regions and includes 19 banks from Europe, 17 banks from Asia, 10 banks from North America and 4 banks from Australia. In terms of the region, 38 per cent of the banks in this study are based in Europe, 34 per cent in Asia, 20 per cent in North America and 8 per cent in Australia. The actions climate change strategic actions of banks are compared country-wise and then analysed by regions.

Country Analysis

Table 2 shows the climate change strategic actions of banks on a country basis. For each category a score based on the items assessed for each bank is developed. These are summarized for all banks in a country group and a mean score is calculated. The t-test is applied to test for significant differences of scores. The p-value indicates whether the level of climate change strategic actions is significantly different from the average. Denmark, the Netherlands and Sweden are grouped together as ‘Scandinavia’ because there is only one bank in each country.

For management commitment, the overall score was 2.05 out of 5. French banks received the highest overall average score of 4.00, followed by the UK and the USA with scores of 3.50 and 3.70, respectively. While most of the bank scores were clustered around the mean, the scores of the top three banks were significantly above the average. The lowest score for climate change strategic actions in this category were South Korean and Chinese banks.

The overall score for emissions reduction was 2.88 out of 4. British, French and German banks were more active than their peers, with the highest score of 4.00. While the scores of Australian and North American banks were clustered around the mean, the scores of European banks (Italy, Spain, Switzerland and Scandinavia) for emissions reduction were significantly above the mean. Asian banks were less active in emissions reduction except for Japan.

For climate change product development, all banks in Asia had scores less than 2. South Korean (score = 0.50) and Chinese (score = 0.89) banks were much lower. The average overall score on product development for all countries was 1.92 out of 4. The top three performers were from Scandinavia, France and the USA. Carbon and climate loans are the most popular forms of specialized climate change products offered by these banks, followed by green financial products and climate advisory services.

The scores for the organizational involvement of banks were similar. Most of the bank scores were clustered around a mean of 2.24 out of 3. Swiss banks received the highest score of 2.50, followed by Scandinavian and UK banks. Chinese and Italian bank scores were significantly below the average. Chinese banks had the lowest score of 1.11 out of 3.

The average score for external relationship development of all banks was 2.68 out of 4. Australian, Canadian, French, German and UK banks appear to take more action with scores significantly higher than average. Chinese banks scored 1.22, which was the lowest in external relationship development.

The overall performance for banks’ climate change strategic actions for the entire sample was 11.50 out of 20. The top three performers were France, the United Kingdom and Scandinavia. Most of the banks in North America and Europe were more highly involved in climate change actions than those in Asia.

Table 2.

Climate Change Strategic Action of Banks by Country

Country	No. of Banks	Management		Emission Reduction		Product Development		Organizational Involvement		External Relationship Development		Total
Country	No. of Banks	Score	p-value	Score	p-value	Score	p-value	Score	p-value	Score	p-value	Score	p-value
AustraliaCanadaChinaScandinaviaFranceGermanyItalyJapanSouth KoreaSpainSwitzerlandUKUSATotalMeanSD	449332362225650	1.752.000.672.504.002.001.001.670.002.503.003.503.172.051.60	0.2380.9300.0000.0120.000*0.9300.0000.1240.0000.0390.0000.0000.000*	3.003.001.14.004.004.003.332.672.003.503.504.002.832.881.16	0.3620.3620.0000.0000.0000.0000.0060.2670.0000.0000.0000.000**0.918	1.752.500.893.003.002.671.331.670.502.002.001.902.831.921.00	0.300.000*0.0000.0000.0000.000*0.4890.110.0000.4890.4890.7760.000**	1.752.251.12.001.671.331.331.502.001.502.502.252.002.240.88	0.4530.000*0.0000.000*0.8870.0570.0000.0570.0570.0570.0000.0000.001**	3.253.251.221.503.333.673.003.003.003.001.503.253.002.681.20	0.0020.0020.0000.0000.0000.0000.0700.0700.0700.0700.0000.000*0.070	11.5013.005.0013.0016.0013.6710.0010.507.0012.5012.5014.7513.872.240.84	0.5160.002*0.0000.0000.0000.000*0.0590.2900.0000.0210.0210.0000.000*

Source: Authors’ calculation.

Note: At the 0.05 significance level: **significantly better than the average; *significantly below the average.

Regional Analysis

Table 3 indicates that the average scores for management commitment are low in Asia (mean = 0.94) and high in North America (mean = 2.70) and Europe (mean = 2.78). For Asian banks, the issue of climate change should be the top priority for management. Asian banks failed to integrate climate change initiatives into risk management systems or to require a link between executive compensation and a specific GHG reduction target. Boards of directors and bank executives in North America, Europe and Australia were more active in articulating a climate change policy and incorporating climate change initiatives into decision-making and risk management. For example, Deutsche Bank has an environmental and social reputational risk framework to assess the environmental and social impact of client transactions. Citibank has also established an Environmental and Social Risk Management (ESRM) policy to ensure that all of its business segments effectively assess and manage environmental and social risks.

Table 3.

Comparative Climate Change Strategic Actions by Region

	Mean	SD	Min	Max	F-test	p-value
I: Management Commitment(Maximum Possible Score = 5)AsianAustraliaEuropeanNorth AmericaTotalII: Emissions Reduction Commitment(Maximum Possible Score = 4)AsiaAustraliaEuropeNorth AmericaTotalIII: Product Development(Maximum Possible Score =4)AsiaAustraliaEuropeanNorth AmericaTotalIV: Organizational Involvement(Maximum Possible Score = 3)AsiaAustraliaEuropeanNorth AmericaTotalV: External Relationship Development(Maximum Possible Score =4)AsiaAustraliaEuropeanNorth AmericaTotal1. Overall Score(Maximum Possible Score =20)AsiaAustraliaEuropeanNorth America	0.941.752.782.702.051.763.003.842.902.881.11.752.362.701.921.291.751.892.102.242.053.252.893.102.687.1811.5013.8413.50	1.440.951.431.331.601.200.000.370.321.160.860.500.920.671.000.590.500.650.570.881.340.961.100.991.203.861.292.242.0	0.001.000.001.000.000.003.001.002.000.000.001.000.002.000.000.001.001.001.000.000.002.000.001.000.001.0010.007.0010.00	4.003.005.005.005.004.003.004.003.004.003.002.004.004.004.002.002.003.003.003.004.004.004.004.004.0015.0013.0018.0017.00	6.18422.43411.8844.6182.5819.053*	0.0010.0000.0000.0070.065*0.000

Source: Authors’ calculation.

Note: *significant at p < 0.05, **significant at p < 0.1.

For emissions reduction, the scores are low in Asia and high in other regions. Asian banks have the mean score of only 1.76 out of 4; the mean score of banks were 2.90, 3.00 and 3.84 in North America, Australia and Europe, respectively. Most banks worldwide have taken specific climate change actions to reduce the amount of GHG emissions. In Asia, there is still limited implementation of policies to manage both direct and indirect carbon emissions. Banks in Asia failed to set specific quantitative GHG emission targets for energy consumption and carbon footprints. There were also no specific measurements of emission savings/offsets and no verification process for GHG emission data from Asian banks.

North American banks had the highest score of 2.70 out of 4 in product development followed by banks in Europe (mean = 2.36), Australia (mean =1.75) and Asia (mean = 1.1). Due to the growing societal concern about high energy intensive activities, banks worldwide offer specialized climate change products to the consumers. The most popular form of climate change products offered by banks are carbon and climate loans related to renewable energy projects and clean technology. Société Générale in France, for example, offered loan for clean energy home renovation. Bank of Communication and China Construction bank have also implemented green credit products. Morgan Stanley in North America has invested over US$1.4 billion of capital in wind, solar and geothermal energy projects. Specialized investment products such as green bonds, sustainability bonds and ecological funds are more popular in Australia, Europe and North America than Asia. In 2013, Bank of America issued US$500 million in green bonds and leading world banks such as BNP Paribus, Credit Agricore and Citibank have also adopted the green bond initiatives to promote sustainability. La Caxia bank in Spain offers ecological funds that invest in international companies that manufacture environmentally friendly products and technology to help fight climate change. In collaboration with the European Investment Bank, HSBC bank offers a £500 million six-year Climate Awareness Bond to its clients in Europe. Banks in Europe also provide climate change advisory services for clients. For example, Deutsche Bank has established a special advisory service called Deutsche Bank Climate Change Advisors to provide consultation for clients on carbon management and green investment. In this category, Asian banks had the lowest scores due to a lack of general awareness about climate change on the part consumers in Asia which hinders the banks’ product development.

For organizational involvement, banks in Australia scored highest with 2.10 out of 3 followed by banks in North America (mean = 1.89), Europe (mean = 1.75) and Asia (mean = 1.29). The scores in this category show that these banks have initiated employee engagement programmes to address climate change. Examples of employment engagement initiatives include implementing carpools for employees, encouraging employee to cycle to work and creating individual and collective campaigns for environmental awareness. Tree planting activities and afforestation are popular activities among Asian banks. Western bank approaches foster the awareness of climate changes often through workshops and employee trainings. Banks in Europe, North America and Australia are also more active on the implementation of energy efficient practices such as low energy lighting systems. They are also reducing the carbon footprint related to infrastructure through the investment in green office facilities with LEED or BREEM certifications.

Table 4.

Overall Regional Ranking

	1st	2nd	3rd	4th
I: Management CommitmentII: Emissions Reduction CommitmentIII: Product DevelopmentIV: Organizational InvolvementV: External Relationship DevelopmentOverall Ranking	N. AmericaEuropeN. AmericaEuropeAustraliaN. America	EuropeAustraliaEuropeN. AmericaN. AmericaEurope	AustraliaN. AmericaAustraliaAustraliaEuropeAustralia	AsiaAsiaAsiaAsiaAsiaAsia

Source: Authors’ own.

Finally, for external relationship development, the Australian banks had the highest score of 3.25 out of 4, followed by banks in North America (mean = 3.10), Europe (mean = 2.89) and Asia (mean = 2.05). Banks in all regions support community affairs projects for climate change mitigation and adaptation. For example, Credit Agricore established a specialist sustainable banking team to support projects including workshops to educate and assist stakeholders to spread awareness of climate change. The Royal Bank of Scotland also collaborates with the UK government to provide low-cost financing to a range of sustainable energy projects. Standard Chartered Bank works with small and medium enterprises to ensure that climate-change-related risk is mitigated during post-harvest financing. Asian banks are less active in supporting international initiatives for climate change. Few of the Asian banks are the members of a global sustainable framework (such as the Climate Principles, UNEPFI and Equator Principles) or actively participate in any kind of investor coalitions compared with banks in other regions.

To test the performance of the banks on climate change for variation across the four regions, an ANOVA was performed on each category of climate change strategic actions using the average score of banks in each region. Significant differences were found across all categories. The mean score for management commitment was 2.05 (F = 6.184, p = 0.0001), for emission reduction was 2.87 (F = 22.434, p = 0.000), for product development was 1.95 (F = 11.884, p = 0.000), for organizational involvement was 1.71 (F = 4.687, p = 0.007) and for external relationship it was 2.68 (F = 2.581, p = 0.065).

For the overall score of climate change strategic action, Asian banks had the lowest overall score (7.18 out of 20) followed by the Australian banks (11.5 out of 20), North American banks (13.5 out of 20) and European banks (13.84 out of 20). Table 4 presents the overall ranking of the banks based on the five categories of climate change strategic actions.

To further investigate the ranking of regional banks, Turkey HSD, a post-hoc test was performed on the significant differences in the overall scores of banks between the regions. The results show that there is a significant difference between banks in Europe (mean = 13.84, SD = 2.24), North America (mean = 13.50, SD = 2.01), Australia (mean = 11.50, SD = 1.29) and Asia (mean = 7.18, SD = 3.86), at a significance level of 0.1. European banks have the highest score among all regions.

Conclusion

This article investigates the strategic actions of banks worldwide in response to climate change based on five categories: management commitment, emissions reduction, product development, organizational involvement and external relationship development. Fifty international banks from 15 different countries and 4 different regions were analysed. The results show that international banks have started to take important climate change actions. There are significant differences in bank climate change strategic actions across countries and regions. At the national level, German, the UK and Scandinavian banks received the highest scores; the scores of banks from China, Japan and South Korea were the lowest.

On a regional basis, North American banks received the highest action scores for management commitment and product development. European banks were ranked first for emissions reduction and organizational involvement. Australian banks were the top performers in external relationship development. Asian banks received the lowest scores for all five categories of climate change strategic actions. Although government policies in relation to climate change in Asia are emerging, the strategic response of banks to environmental issues is weak (Brown, Linder, Park, & Brown 2007, Jeswani et al., 2008; Lee, 2012). Climate change strategic action remains relatively limited for banks in Asia. The absence of mandatory government regulations with specific targets to reduce GHG emissions limits climate change actions from banks, and the pressure for action from stakeholders is weaker for Asian banks. Banks in Europe, North America and Australia face higher pressures from shareholders, stakeholders and NGOs to disclose and reduce GHG emission both directly and indirectly resulting in a growing demand for climate-friendly products and services from banks (The Financing the Future Consortium, 2013).

Theoretically, this article links the theory of organizational adaptation to the practice of bank’s strategic actions taken to mitigate climate change. It has also taken the conceptual basis of these strategic actions and tested them empirically with appropriate reliability. As a practical contribution, this study shows the significant differences between banks in different countries and geographic regions. Higher scores in climate change actions are associated with countries and regions with stronger institutional banking environments and bank leaders who are more cognizant and active in response to climate change problems. The framework specifies strategic actions in response to climate change and it allows banks to benchmark against the most action-oriented banks. The framework can also be used as guidelines to promote sustainability and increase the positive climate change impacts in the long run.

Managerial Implications

The results reveal a significant gap between Asian banks and banks in other regions on all categories of climate change strategic actions. Institutional investors are requiring banks to be action oriented to support their own commitments to sustainable development and also because climate change actions show the positive financial returns. Banks deploying climate change policies will have a lower cost of debt, higher bottom line profits and more stable cash flows (Miltner, 2013). The findings of the study provide several managerial implications for Asian banks. To increase the overall climate change strategic actions, banks should not wait for government policies or stakeholder pressure. Leadership from the CEO and top management is required to ensure that climate change initiatives are integrated into mainstream business activities to promote long-term green investment and environmental technology. At the corporate and retail level, Asian banks are required to factor climate risk into investment decisions and take action for more positive environmental impacts by offering more specialized climate-change-related products through lending and investing in renewable energy and energy-saving initiatives to drive longer sustainability. Banks could also offer support programmes to help consumers purchase more energy-efficient vehicles and household appliances. There is also a positive opportunity for banks to offer advisory services on climate-change-related issues for clients on the issue of how to develop the strategy to measure, manage and disclose their carbon footprint. Stronger collaboration with stakeholders and policy-makers is also necessary to support reduced CO² initiatives. As suggested by Pinkse and Kolk (2012), such partnerships strongly support climate change mitigation and adaptation. Banks should coordinate or partner with industry associations, government agencies and non-government organizations to increase climate change solution and apply climate change mitigation to their own operations.

Limitations and Future Research

The limitations of the study must be considered. The study is exploratory in nature and uses a sample of 50 banks located in four different regions. The results are based on publicly available data. The analysis of strategic climate change actions is quantitative as the based on content analysis which relies on the documentation provided by banks. Future research could increase the sample size and expand to more regions. Additional qualitative and quantitative research on the barriers within and outside of banks that hinder the implementation of effective climate change strategies and the implementation of climate change strategic actions in the international banks would also be beneficial.

Footnotes

Acknowledgements

The authors are grateful to the anonymous referees of Global Business Review for their extremely fruitful comments and suggestions to improve the quality of the article. The usual disclaimers apply.

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