Major banks are failing to adequately address the risk of climate change in their investment decisions, according to a major report released by PricewaterhouseCooper.

The study assessed the performance of a group of leading financial institutions -- Crédit Agricole, HSBC and Standard Chartered and insurance groups Munich Re and Swiss Re -- against the Climate Principles, a set of green investment guidelines launched by the Climate Group in 2008 and endorsed by the five companies.

It found that while the companies had made strides to reduce their carbon footprint, they scored badly in a review of the environmental impact of their project finance activities.

The report said that the institutions were continuing to finance projects that emit more than 100,000 tons CO2 equivalent per year without ensuring those projects are doing all they can to reduce emissions or look at alternative technologies.

John Williams of PwC, author of the report, told the Financial Times: "What banks should be doing is saying we know that there will be regulation of carbon, therefore why would you finance an asset that will become stranded in the next decade?"

The report found it difficult to ascertain how banks are engaging with their clients to ensure projects have emissions reduction plans, how their emissions are calculated, monitored and disclosed; and how projects are provided with the necessary support to mitigate emissions produced during their lifetime.

"Institutions need to make more information publicly available to explain how they are engaging with clients involved in carbon-intensive projects," the report states. "Greater transparency will improve stakeholder understanding of the challenges being faced and the solutions being implemented to resolve them. "

The report also found some of the institutions are not doing enough to finance low-carbon investments, revealing that only two of the five firms have put in place a plan to "develop viable financing solutions to facilitate investment in low-carbon technologies and GHG-reduction projects".

The banks fared much better in other areas, including reducing the carbon intensity of their own operations, integrating climate change issues into general business activities and working with their supply chains to reduce emissions.

The five institutions met with the Climate Group in Davos to discuss their progress and how they can improve their adherence to the Climate Principles.

They also welcomed fund manager F&C Asset Management as the sixth signatory to the Climate Principles.

Alain Grisay, chief executive of F&C Asset Management, said there was a compelling business case for financial institutions to adhere to green investment guidelines. "If there is one lesson to be learned from the credit crisis, it is that apparently rational, competitively driven behaviour can have tragic consequences when there is a systemic failure to recognise and price in unconventional risks," he explained.

"As with the credit crisis, we need a systemic approach to avert disaster. The Climate Principles represent our response to this crisis in the making and our commitment to do something concrete and powerful to avert it."

This article originally appeared at BusinessGreen.com.

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