In Short : The PRB’s guidance emphasizes the importance of assessing climate risks and vulnerabilities in bank lending and investment portfolios. It recommends adopting a sectoral approach to target setting, focusing on the sectors most exposed to climate risks and those with significant greenhouse gas emissions. The guidance also highlights the need for collaboration with stakeholders, including clients, local communities, and experts, to ensure effective adaptation strategies.
In Detail : In response to the escalating impacts of climate change and the widening gap in adaptation finance, today the Principles for Responsible Banking (PRB) has unveiled a new publication aimed at guiding banks to set climate adaptation targets. The new guidance comes following the latest UNEP Adaptation Gap Report, which reveals a staggering USD 194-366 billion funding deficit in developing countries for adaptation annually.
There is an urgent need for global efforts to close the gap in adaptation finance. Although current financing is mainly provided by public sources, private finance has an increasingly important role to play in helping to prevent, prepare for, and respond to climate-caused crises, with several business opportunities arising for banks.
The Climate Adaptation Target Setting guidance, developed by a working group of 27 PRB signatory banks and key external stakeholders, aims to help banks accelerate their efforts on managing climate-related impacts and financing climate adaptation. Building on a framing paper published in 2022, it sets out an initial, guiding approach for setting adaptation targets and incorporating adaptation considerations in their transition plans and sustainability strategies, while leveraging co-benefits of adaptation with climate, nature, and other aspects of the UN Sustainable Development Goals (SDGs). By providing a framework for banks to manage climate-related risks and opportunities, the PRB guidance adds to the ongoing work to unlock private sector finance for climate adaptation, which can help to bridge the gap between current adaptation finance flows and the estimated needs.
The guidance also considers the diverse challenges faced by banks globally, including those in the Global South, where climate vulnerabilities are the greatest. By aligning with regional and sectoral priorities defined in National Adaptation Plans and Nationally Determined Contributions, the PRB aims to ensure that banks play a pivotal role in supporting their clients’ adaptation strategies. Banks can also develop innovative adaptation products and services to support climate resilient development.
This release is an important step for PRB signatories who have identified climate adaptation as an area of significant impact to meet their commitment to address the global climate challenge. Looking ahead, in 2024, the United Nations Environment Programme Finance Initiative (UNEP FI) plans to explore the practical implementation by piloting with more sector-specific elements with a select group of banks. This move signifies a concerted effort to translate the guidance into practice, marking a significant stride towards a more sustainable and resilient global banking system. Next year will also see publication of a foundational supplement focusing on physical risk assessment.