Much of the global banking industry has made little effort to help the world decarbonise, and even those that have are setting "inadequate" targets, according to two new reports.
The Net Zero Banking Alliance, which includes Barclays PLC (LSE:BARC), HSBC Holdings PLC, Lloyds Banking Group PLC (LSE:LLOY), Nationwide Building Society, NatWest Group PLC (LSE:NWG), Standard Chartered PLC, Co-Op, Virgin Money UK PLC (LSE:VMUK) in the UK and Citigroup, Goldman Sachs (NYSE:GS) and Wells Fargo in the US, issued a report on Wednesday pointing to 60 of its members (50%) having now set "intermediate decarbonisation targets".
It said the targets are "meaningful and science-based", as they prioritise the most carbon intensive business or their most significant financial exposures.
Of 43 banks that said they would publish targets by the end of October, nine out of ten have done so.
“Very rarely is a first attempt perfect. But this report demonstrates exceptional progress for the Alliance and for the global banking industry,” said Eric Usher head of the United Nations Environment – Finance Initiative (UNUP FI).
“Much of the 60% of the global banking industry outside the Alliance has made little effort to decarbonise. But with over half of its members having now set intermediate targets, the Alliance is blazing a trail for other banks to follow and has built a clear roadmap for governments to leverage in creating policies that will support a more sustainable financial system.”
But the targets set by a third of the banks in the Alliance risk compromising the commitment to net zero, according to new data published by responsible investment organisation ShareAction.
Examining the 43 biggest banks in the Alliance that are the largest financers of fossil fuels found, ShareAction found that "crucial gaps remain", with only 16 setting overarching targets to ensure emissions reductions are on track for 2030 and a broad failure to include emissions-heavy sectors such as chemicals and agriculture or capital markets activities in many banks' targets.
Furthermore, there was a widespread use by banks of 'emissions intensity' data rather than targeting absolute emissions reduction, while banks had varying approaches to fossil fuel targets that the NGO said means that they "fail to capture their full climate impact".
For example, among banks that have set an oil and gas target, over a third, including JPMorgan, NatWest, and Standard Chartered, set intensity targets.
What's more, as the NZBA has not set a requirement to include capital markets activities, 25 of the 31 banks that have oil and gas targets do not include raising funds for oil and gas companies in their decarbonisation targets, despite them typically forming the bulk of financing provided by banks to the oil and gas industry.
For example, Credit Suisse and UBS exclude capital markets activities in their oil and gas targets despite 77% of Credit Suisse and 94% of UBS financing for oil and gas being in this form.
On the plus side, important advances have been made in target setting for the transport sector, the research found, with commitments made by 15 banks for automotives, five banks (Commerzbank, ING, La Banque Postale, Lloyds Banking Group, Santander) in aviation and two banks (Crédit Mutuel, ING) in shipping.
However, only one bank published a target for agriculture, and none in the chemicals sector, which both pose "significant climate risks" for investors, the report said.
Xavier Lerin, senior research manager at ShareAction, said: “Every member of the NZBA has pledged to align their portfolios with the goals of the Paris Agreement and keep warming within 1.5°C – yet our research shows that their target-setting is falling short.
“Banks have a vital role to play in financing the transition to net zero that people around the world are counting on for a liveable future – they should act now to ensure their decarbonisation goals are far more ambitious."
Lerin added: “It’s clearer than ever that we can’t rely on voluntary initiatives alone – governments should step up with robust regulation to ensure companies are taking meaningful rapid action to get us to a 1.5C world.”
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