But low uptake suggests the finance sector is reluctant to publicly commit to fight climate change in the current downturn

Five major banks and insurers today pledged to consider the carbon impacts of their lending, investments and other services in a bid to get customers to tackle climate change.

Credit Agricole, HSBC, Munich Re, Standard Chartered, and Swiss Re made the promise as they launched The Climate Principles, a set of guidelines designed to shape the finance sector’s response to global warming.

Companies adopting the principles have agreed to evaluate the climate change risks to their business and to develop green products and services for customers, according to the Climate Group, which helped devise the voluntary best practice framework.

But the fact that just five companies have committed to the principles, which are far from demanding, cast doubt on the readiness of banks to finance the transition to a low-carbon economy.

It shows that financial institutions are wary about making environmental promises that they might be unable to keep in the current global market turmoil.

Around 20 financial institutions helped to develop the principles, but just five felt able to go public with their commitment to the framework at this stage, the Climate Group says.

The organisation, which will monitor how signatories put the principles into practice, hopes to sign up another five companies to the initiative by the end of 2009.

Banks and insurers signed up to the principles agree to assess the climate and carbon risk – the physical and regulatory risks of climate change to their business – across relevant product and service areas.

Signatories agree then to encourage customers to reduce exposure to these risks by reducing their carbon footprints.

So in project finance, for example, banks signed up to the principles will demand that carbon intensive projects disclose greenhouse gas emissions and invest in the latest technology, or buy carbon offsets, to cut these emissions.

In corporate lending, signatories promise to address the carbon impacts of their loan and investment portfolios.

Financial institutions pledge to “consider practical ways to assess the carbon and climate risks of our lending and investment activities. Where a feasible and relevant methodology can be found, we will develop and implement this approach.”

This commitment may be vague; but it marks a step forward for the finance sector that has repeatedly refused to be drawn on how it will account for the carbon footprint of companies that it finances.

Other areas covered by the principles include retail banking, insurance and re-insurance, investment banking, research and asset management.

For more information on the principles, click here

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