View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Analysis
November 11, 2022

Top banks’ decarbonisation targets risk net-zero overshoot

By Polly Bindman

On 9 November, to coincide with COP27’s ‘Finance Day’, the Net Zero Banking Alliance (NZBA) released its first progress report on its members’ decarbonisation targets. Achieving what it calls a “major milestone”, the NZBA’s report shows that 90% of the 43 banks due to publish their targets by the end of October have now done so, while an additional 19 banks have produced targets “well in advance” of their deadlines.

Yet according to a report published one day prior by financial non-profit ShareAction, most NZBA members have set climate targets that “fall short of what’s needed to prevent the worst impacts of climate crisis”.

Established in April 2021, the NZBA gave members – now totalling 119 banks representing 40% of global assets –18 months to produce a first round of emissions-reduction targets for “priority carbon-intensive sectors” in their portfolios. ShareAction focuses its analysis on 43 of those banks selected for their asset size and historically large fossil fuel financing activities, and which were due to set targets by 31 October.

As is evident in the NZBA’s report, most banks in ShareAction’s analysis have set at least one sector-specific target for reducing greenhouse gas (GHG) emissions. However, the non-profit finds that just 16% (or seven banks) out of the 43 have set an overarching climate target for 2030 that covers the bank’s entire portfolio.

In addition, while it is positive that more than 80% of banks have prioritised setting targets for the highest-emitting sectors like power and oil and gas, the negligible number of targets set for other sectors like agriculture or chemicals poses “significant climate risks for investors“, ShareAction notes.

Where banks have set targets, ShareAction claims divergent approaches and levels of ambition makes them difficult to benchmark. For example, the vast majority of targets set by the 43 banks it scrutinises focus on emissions intensity rather than absolute emissions reductions. The priority should be to “commit to a managed decline in output” rather than “encourage oil & gas companies to produce more oil & gas efficiently”, argues the non-profit.

Where banks have set absolute emission-reduction targets for oil and gas, they are generally aligned with the rate of reduction implied by the International Energy Agency (IEA)’s Net Zero Emissions by 2050 scenario. Nevertheless, ShareAction suggests banks could be underestimating the rate of reduction required when methane emissions are added on.

Another gap the non-profit highlights is the scope of financing covered by targets. Just six banks (16%) include capital markets facilitation and underwriting activities in their targets, despite evidence that these activities make up a high proportion of banks' fossil fuel financing.

That only seven banks – Lloyds Banking Group, NatWest, Nordea, BPCE, La Banque Postale, Crédit Mutuel and KB Financial Group – have set an overarching 2030 target is perhaps not surprising given that the NZBA’s guidelines do not explicitly call for banks to halve their emissions by 2030.

The NZBA has been “less explicit” in this requirement than other alliances making up the wider network for net-zero financial institutions, the Glasgow Financial Alliance for Net Zero (GFANZ), says Jeanne Martin, head of ShareAction’s Banking Programme. For example, the Net Zero Asset Managers initiative, also under the GFANZ umbrella, calls on members to set 2030 targets "consistent with a fair share of the 50 per cent global reduction in CO2".

ShareAction does not claim the banks have breached NZBA’s guidelines but rather that the “loose” rules have rendered members’ targets “insufficient for them to meet their net zero ambitions”.

Noting that some banks have missed or extended the deadline to set targets, the non-profit calls on the NZBA to "monitor non-compliance and enforce accountability", as well as "explicitly request" that member banks set interim targets for 2030.

[Keep up with Energy Monitor: Subscribe to our weekly newsletter]

Responding to a request for comment on behalf of the NZBA, Remco Fischer, programme lead for the UN Environment Programme Finance Initiative, acknowledges finding “common ground on many of ShareAction’s technical analyses” but argues that they “fail to reckon with the highly regulated, highly diversified, highly complex nature of financial institutions, which operate in equally complex economic and political environments”.

As such, Fischer says the analysis “does not accurately represent how the NZBA commitment and NZBA guidelines for target-setting deliberately accommodate that complexity”. 

Fischer also notes that under the NZBA, banks have a period of 36 months from signing up to presenting a complete body of targets, which “will be based on 1.5°C-compatible GHG emissions pathways which are consistent with a halving of emissions, economy-wide, by 2030”. 

ShareAction’s assessment “gives little prominence to the significant level of decarbonisation ambition that NZBA member banks have established for themselves – as competitive market entities with a commercial mandate – which, by far, supersedes the level of ambition of any national government around the world”, he adds.

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Friday. The leasing industry's most comprehensive news and information delivered every month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Leasing Life