AIB taking on the climate challenge

Sustainability is at the very top of the business agenda for AIB, according to chief executive Colin Hunt. "Climate change is the greatest challenge facing this generation. If we do not take action now, as individuals, as a society, in politics, in industry and in business, our children and our grandchildren will not forgive us. I have put sustainability front and centre of AIB's business, and the bank is leading the way in climate finance in Ireland."

The financial and investment landscape has evolved greatly in recent years, he adds. “Some of the world’s biggest institutional investors and banks are now, as standard practice, building climate risks into their evaluation models,” he says. “And asset prices more generally have shifted to investors picking ‘winners and losers’ based on the merits of their sustainability outlook.”

COP26, the next UN climate change conference to be held in Glasgow in November, will review the Paris Agreement commitments. “If countries cannot agree on ways to sufficiently reduce global warming, the rate of decarbonisation required will become even steeper,” says Hunt. “It is critically important that we act now and that is why AIB has committed to become net zero in our own operations by 2030 and stated our ambition for 70 per cent of our new lending to be green by 2030. We are already seeing real progress with 16 per cent of our 2020 lending classified as green.”

Green lending

Indeed, according to AIB’s fifth sustainability report, green lending rose to €1.46 billion last year compared with €1.2 billion in 2019, substantially surpassing the €1 billion annual green lending target the bank set in 2019.

The aim is to create a virtuous green circle of finance where the bank attracts new capital utilising its green bond framework and investing that capital into green and transition lending. This ranges from green mortgages and electric vehicles for personal customers, through to products such as sustainability-linked loans where corporate customers are incrementally rewarded for sustainability progress.

“This issue is becoming even more central to the agenda of business, governments, regulators and consumers who are all urging action,” Hunt points out. “As the executive secretary on the UN Framework Convention on Climate Change, Christiana Figueres, said at the 2020 AIB Sustainability Conference: ‘Where the money goes, the carbon follows.’ Our job in banking, as part of the wider financial services ecosystem, is to ensure the money goes to support a low carbon and sustainable future.”

Social and governance factors are also high on the agenda. “AIB has a strong focus on supporting the transition to a low carbon economy, but we are also very much about sustainability in its broadest sense including the social and governance aspects,” Hunt explains.

Challenging

But measuring those aspects can be challenging. “With that in mind, AIB has this year committed to align our reporting to stakeholder capitalism metrics – a set of environmental, social and governance (ESG) metrics and disclosures released by the World Economic Forum in September 2020,” he adds. “This move will further support the effort to provide concise, consistent and comparable disclosures for all our stakeholders, including investors.”

AIB is now rated in the upper tier of banks globally by a cross section of the leading ESG rating agencies, he adds. “This is significant because investors are increasingly focused not just on the Green Bond Framework and the pool of eligible loans, but also the credibility and impact of the issuer’s overall sustainability strategy.”

And the bank is committed to doing more. “We are determined to lead by example on the carbon reduction agenda,” Hunt concludes. “Last year, for example, AIB became the first Irish bank to pledge to operate as carbon neutral by 2030, using a ‘net zero’ approach. That means cutting greenhouse gas emissions to as close to zero as possible – through the elimination of carbon rather than offsetting it. We know that we can and must do more to advance the sustainability agenda in Ireland. This is the decade for change and AIB is committed to being a change-maker to enable action and meaningful progress.”