AIB: green financiers should figure on greater rigour

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AIB: green financiers should figure on greater rigour

20 November 2023 Clean energy investing 0

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What makes a project green? In cases such as wind farms, the answer is obvious. Other definitions can be woolly. A sheep farm might qualify for climate finance if it follows certain “sustainable” farming practices, for instance.

After years of criticism from environmental groups, more banks are setting green lending targets. But definitions are stretchy. That could turn the initiatives into case studies in greenwashing.

Ireland’s AIB Group says it will triple the money allocated to a climate fund to €30bn. It aims for 70 per cent of all new lending to go to green or “transition” projects by 2030.

This is a global trend: the top 24 European and US banks have collectively pledged €15tn towards sustainable finance targets by 2030, according to Alvarez & Marsal (A&M).

On first sight, AIB’s 70 per cent target looks ambitious. Out of total new lending of €12.6bn last year €3.3bn, or 26 per cent, was green finance.

Including transition finance should make AIB’s job easier. But the bank acknowledges it may need to revisit transition criteria as “global definitions evolve”.

Under current criteria, a telecoms company could qualify for transition funding if it deals in teleconferencing software. A breeding cattle farm could equally buy cows with a good environmental rating.

Other areas are more straight forward. Green mortgages were a particularly strong area of AIB’s green finance growth in 2022. Here, banks offer cheaper loans for the purchase of homes with high energy efficiency ratings — often new-build properties.

Green mortgages should continue to provide growth, even if a decline in property lending means overall new loans are likely to dip this year to about €9.5bn, according to Davy analyst Diarmaid Sheridan.

Crucially, just two of the top 24 European and US banks report the revenue potential of sustainable finance, according to A&M. For green finance initiatives to stick, banks need to prove to investors they are more than just a promotional exercise.

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