The content on this website is intended for investment professionals and institutional asset owners. Individual retail investors should consult with their financial advisers before using any of the content contained on this website. Breckinridge uses cookies to improve user experience. By using our website, you consent to our cookies in accordance with our cookie policy. By clicking “I Agree” and accessing this website, you represent and warrant that you are agreeing to the above statements. In addition, you have read, understood and agree to the terms and conditions of this website. The content on this website is not intended for use or distribution outside of the U.S., unless permitted by applicable law.


ESG Newsletter published on September 14, 2020

Engagements Affirm Largest U.S. Banks’ Climate-Transition Plans

Breckinridge’s 2020 banking industry engagements have highlighted a sustained commitment to climate-risk management among some of the largest U.S. banks. In particular, two management engagements revealed substantive progress on long-term initiatives that address climate strategies in operations and underwriting. Climate-risk management includes stress testing oil and gas loan exposures, considering the impact of a global price on carbon, carbon foot-printing loan portfolios and conducting climate scenario analysis. The Sustainability Accounting Standards Board (SASB) considers climate a material risk to commercial bank loan portfolios and encourages discussion, analysis and quantitative disclosures.1

We found that large U.S. banks increasingly are publishing new financial disclosures to better align with the Task Force on Climate-related Financial Disclosures (TCFD), which was established by the Financial Stability Board (FSB).2 The TCFD developed voluntary climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The TCFD considers the physical, liability and transition risks associated with climate change as well as guidance on effective financial disclosures across industries. Global systemically important banks (G-SIBs) are publishing TCFD reports to disclose these risks to regulators, investors and broader stakeholders.3

TCFD-Aligned Report Offers Additional Insight

Our 2020 engagements have revealed growing alignment with the TCFD’s operating and reporting standards. For example, during one engagement, we learned that a bank’s TCFD report presented information on the bank’s business and operational climate performance and its efforts towards implementing the TCFD recommendations, including a climate scenario analyses that the bank undertook as part of the UN Environment Finance Initiative Banking Sector Pilot Project alongside fifteen other financial institutions.

The bank’s climate risk integration strategy has three elements: 1) risk policies, 2) scenario analysis related to portfolio management, and 3) measurement. The bank’s comments in each area provide additional insight.

  • Risk policies: Environmental and social policies are monitored to ensure they make sense for the bank and its clients. A decision to end coal-based power plant financing fits within this category.
  • Scenario analysis: The bank has a “full-fledged working group” comprised of employees from different teams approaching climate risks from different perspectives. They consider climate risks based on the activities they are involved with and contribute to.
    • In the bank’s short-term stress tests focused on its global oil and gas portfolio, they considered the impact of a global price on carbon on clients, if instituted over a three-year period. The bank isolated the climate performance of a banking client through this analysis, as each has different external credit ratings and different levels of resiliency.
  • Measurement: The bank is working on carbon foot-printing its loan portfolio, which is “new territory” for banks that it believes will become “more and more essential.”

We quote, “This report is just the beginning of our journey to incorporate climate scenario analysis into our overall strategy and reporting,” the bank commented. “Climate scenario analysis is a new area for many companies … we expect the methodology and tools to conduct climate scenario analysis to evolve and improve over time. This report represents an important first step upon which we will build to deepen our understanding of climate risks and opportunities.”

Internal Initiative Demonstrates Commitment.

Another large bank that we engaged with demonstrated its ongoing commitment to climate transition integration into its operations with the launch of a substantive internal initiative.

To advance the bank’s focus on developing a greater understanding of climate change, it hired a climate risk expert in its Environmental and Social Risk Management team and created a 30-member climate change working group representing a variety of departments including credit risk.

The group is training bank colleagues on climate risk, contributing to the bank’s forthcoming TCFD report, and “working collaboratively to understand how climate change will impact various lines of business.” The bank is also engaging with clients to understand what they see as best practices in terms of managing climate risks and is considering the UK central bank and European regulatory actions on climate.4

The substantive efforts among some of the largest U.S. G-SIBs to advance long-term climate transition reporting and operations comes amid near-term challenges related to adaptation to COVID-19 business and societal changes and related economic considerations. However, stranded asset and climate transition risk are a multi-generational challenge for systemic U.S. banks that is becoming increasingly vital to manage.5 We consider banks increased attention to climate transition risk to have important implications for operations, loan portfolios and credit quality both at present and in the future.


[1] SASB, Commercial Banks Research Brief, pp. 21, February 2014.

[2] The Financial Stability Board (FSB) established the TCFD in December 2015. The FSB is an international body that monitors and makes recommendations about the global financial system.

[3] The FSB in consultation with the Basel Committee on Banking Supervision (BCBS) annually identifies a list of G-SIBs that require additional capital buffers corresponding to the institution’s systemic risk to the banking system.

[4] Stress-Testing the Financial Stability Implications of Climate Change, Bank of England, December 18, 2019

[5] Banks Disclose Energy Exposure, Efforts to Shrink Portfolio, S&P Global Market Intelligence, May 7, 2020

DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. Investors should consult with their financial professional before making any investment decisions.

While Breckinridge believes the assessment of ESG criteria can improve overall credit risk analysis, there is no guarantee that integrating ESG analysis will provide improved risk-adjusted returns over any specific time period.

Some information has been taken directly from unaffiliated third-party sources. Breckinridge believes such information is reliable but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices.

Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.