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Report highlights disconnection between major international banks’ net zero words and deeds
16/10/2024
News
Despite major international banks setting targets to tackle climate change, the current ambition and scope of their actions ‘remain insufficient to meet climate goals’, according to the Transition Pathway Initiative (TPI) Centre. Its latest analysis finds that 85% of the banks studied remain willing to finance new coal projects; none have pledged to phase out coal financing in alignment with the 1.5°C warming target; and only 8% have committed to ending project financing of new oil and gas fields.
Furthermore, 0% of the banks are committed to ending all activities that finance deforestation by 2025, and 0% have explicitly committed to decarbonise in line with just transition principles.
The report from the TPI Centre, based at the London School of Economics and Political Science (LSE), assesses the climate ambitions of 26 major international banks, 10 US super-regional banks, and two custodian banks. Highlighting a disconnect between the banks’ net zero goals and their actions, it estimates that their targets cover less than 22% of their total revenues. That leaves major material business segments, in particular capital market activities, excluded.
While most banks acknowledge that climate risks could have a material impact on their business, very few integrate these risk considerations into their financial statements. Banks are also still failing to disclose how much of their total financing goes towards climate-related projects, says the TPI Centre.
Based on the sectors and business activities for which banks have set decarbonisation targets, the report looked at banks’ carbon performance. It evaluated banks’ alignment with sectoral decarbonisation benchmarks (1.5°C, below 2°C, and national/international pledges) over different time periods. It found that banks remain ‘largely not consistent with the Paris Agreement’. Only 19% of banks’ sectoral pathways aligned with 1.5°C or below 2°C targets in the medium term (2028–2035). It also suggests that banks lack clear short- and long-term pathways to net zero by 2050.
The analysis also points to regional differences, with European and Japanese banks having set more sectoral decarbonisation targets than those in North America or China. Indeed, Chinese banks are reported to have not yet set any sectoral decarbonisation targets. The report also notes that of the banks assessed, Barclays, BNP Paribas, Groupe Crédit Agricole, HSBC, ING Bank and JP Morgan Chase have set the most targets, with BNP Paribas covering nine of the 14 high-emission sectors with at least one target, and the others covering eight sectors.
ING, Deutsche Bank and JP Morgan Chase have the highest number of targets aligned with temperature goals of 1.5°C and below 2°C by 2035, setting three each, mainly in the electricity utilities sector.
In the US, only one super-regional bank has committed to reaching net zero financed emissions by 2050, according to the report. None have set sectoral decarbonisation targets, and only half have committed to scaling up climate finance with specific targets and milestones. Only Fifth Third Bank, Huntington Bancshares, and PNC disclose absolute financed emissions, while Truist is the only one to disclose its exposure to all material high-emission sectors.
Simon Dietz, Research Director at the TPI Centre and Professor of Environmental Policy, Department of Geography, LSE, says: ‘While some progress has been made since our initial assessments in 2022, banks are not moving fast enough to meet global climate goals. Without stronger action, the banking sector exposes itself – and by extension, the global economy – to greater regulatory, market, and physical risks associated with climate change.’
