Serra de Rubio wind farm's wind turbines are pictured in Castellfollit del Boix on December 2, 2019. (Photo by PAU BARRENA / AFP) (Photo by PAU BARRENA/AFP via Getty Images)
UniCredit chief cited a recent decision by the lender to divest an offshore wind farm after it fell into financial difficulties — artificial rewards to hold on to it, he said, could have left it exposed © AFP via Getty Images

The chief executive of Italy’s largest lender has warned that incentivising banks to do more green lending poses a threat to financial stability, putting him at odds with policymakers and bankers who are pushing the idea.

Jean Pierre Mustier, chief executive of UniCredit and president of the European Banking Federation, said he opposed the introduction of a so-called “green-supporting factor” in Europe, whereby banks would have to hold less capital against loans that helped finance climate-friendly projects.

“We should not have a green supporting factor because it’s going to create risks in the balance sheet,” Mr Mustier said during an interview at the Financial Times Banking Summit in London.

Mr Mustier cited a recent decision by UniCredit to divest an offshore wind farm it took control of after it fell into financial difficulties. Had the bank been artificially rewarded for keeping such an investment, it might have chosen to hold on to the company, leaving it exposed if its problems worsened, he said.

The intervention from the UniCredit boss comes just days after the European Commission said it wanted to explore the introduction of incentives to encourage green investment in Europe. Some bank executives are also championing the idea, which they see as a potential “carrot” that could lower their capital requirements, while also helping them shift their loan books towards greener lending and away from fossil fuels.

Last week, Valdis Dombrovskis, a vice-president of the commission, told the FT that a capital incentive for green lending was “something we need to explore”, arguing that it could encourage banks to finance energy-efficient homes, zero-emissions transport and other green projects.

HSBC is among several banks that have discussed with European regulators the idea of being granted a “discount” on capital risk weightings attached to investments in green companies. “HSBC and others have pushed this with regulators but so far they are not keen,” said one senior banker.

Karin Dohm, head of government and regulatory affairs at Deutsche Bank, said her company is also in favour of such incentives and believes that encouraging capital to move in a certain direction with “velocity” is necessary to effect change.

“I am also convinced regulators will look into a penalising ‘brown’ factor . . . identifying areas they don’t want money invested into,” she said at the FT conference. “If you want the right incentives you should spread the risk weighting of assets, not just move them in one direction, to really get things going.”

Certain countries, including Austria and the UK, have signalled a more open attitude towards the issue, according to financiers, although Bank of England governor Mark Carney has previously spoken out against the idea of lighter risk weightings.

Mr Carney will take up a role as UN special envoy for climate action and finance when his term as BoE governor ends next year. It reflects a global push for central banks to play a bigger role in tackling climate change, especially after European Central Bank president Christine Lagarde said she wanted it to become a “mission critical” priority.

Her stance has attracted opposition from some eurozone central bankers who believe it is solely a political matter. They argue supervisors should not be co-opted into tackling climate change, distracting from their more narrowly defined primary mission.

“What is not our task is to promote environmental goals — we are indeed [uneasy],” Joachim Wuermeling, a member of the Bundesbank executive board, said in an interview at the FT conference.

FILE PHOTO: Unicredit bank Chief Executive Officer Jean Pierre Mustier looks on during the shareholders meeting in Rome, Italy, January 12, 2017. REUTERS/Remo Casilli/File Photo
Jean Pierre Mustier: 'We should not have a green supporting factor because it’s going to create risks in the balance sheet' © Reuters

Green incentives could end up “disregarding the significance of the risk of such transactions and this is something we don’t like because this shifts our focus from supervision of banks,” he said. “Supervisory tools should not be — and I say this very clearly — misused to steer the economy to reach political goals.”

The debate between bankers and their supervisors come as leaders from more than 100 countries gather in Madrid this week for the UN climate summit to discuss ways to set bolder global emission goals.

Many are pushing for EU countries to increase planned emissions cuts in the next decade and attempt to reach zero net emissions in 2050. While many countries, including the UK, have adopted the promise, few have set out concrete policies to reach the goal.

Additionally, the EU is in the middle of writing rules that banks and funds will have to comply with when they claim to launch green products or investments. The initiative aims to eliminate so-called “greenwashing”, whereby products are oversold on their environmental credentials.

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