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‘Climate risk management’: Ex-Bank of England boss: Banks should link executive pay to UN Paris climate goals

Former Bank of England governor Mark Carney has said banks should link executive pay to climate risk management, as part of efforts to align the finance industry with Paris climate goals.

Speaking at the UN Environment Programme Finance Initiative roundtable on Tuesday, the former central bank boss said lenders should – at the very least – be transparent over whether or not pay is being tied to climate targets.

He said banks must “have some interim objectives and targets that are disclosed. Ideally a governance process that’s clear in terms of … specific board-level governance and responsibility around managing climate risks and opportunities. Ideally, [there should be] some compensation link to that as well, or at least disclosure about whether it is there or not.”

While a number of major banks have announced net-zero climate pledges in recent months, few have made explicit commitments about how executive remuneration might play a part in keeping lenders accountable.

HSBC and Wall Street giant JP Morgan both revealed climate pledges last week. HSBC committed to achieving net-zero emissions by 2050, linked to the loans and services it provides to clients. It came days after JP Morgan made similar pledges, saying it would push clients towards aligning with the Paris agreement, which is meant to limit temperature rises to 1.5C and avoid the worst impacts of the climate crisis.

Barclays announced plans to shrink its carbon footprint to net zero by 2050 earlier this year and Lloyds committed to halving the amount of carbon emissions it finances through personal and business loans by 2030.

Neither HSBC nor Lloyds were immediately able to confirm whether executive pay was linked to their climate targets when contacted by the Guardian on Tuesday.

JP Morgan said the bank would be announcing its methodology in the spring, and that it has not ruled out linking pay to climate pledges.

NatWest Group confirmed that decisions on pay for its top executives – including chief executive Alison Rose – do take climate targets into consideration. The bank has pledged to fully phase out coal financing by 2030 and is aiming to “at least halve” the climate impact of its lending activity by the end of the decade.