By Jeanne Martin, Senior Campaign Manager, ShareAction
The eyes of the world will be on Glasgow next week, as world governments meet for the latest round of global climate talks, a critical milestone in the ever-critical fight against climate change.
There couldn’t be more at stake.
Scientists have made it clear that time is running out to prevent climate chaos.
Under the goals of the Paris Agreement – once again being discussed in Glasgow – global governments agreed to strive to hold warming to below 1.5 degrees Celsius.
One thing is clear. This will not be possible without action in the banking sector.
Yet this is a sector that still lags behind.
The banking sector is still fuelling climate change – despite big claims on net zero
The past year has seen a flurry of ‘net-zero’ announcements from banks.
Yet not one major bank has matched this with a comprehensive plan to avert climate change, or biodiversity loss.
What’s more the sector continues to pump billions of dollars into the fossil fuel sector every single year.
Not only are these banks not working to avert the worst impacts of climate change, but by propping up the fossil fuel industry, they continue to drive the climate crisis, which is already bringing untold suffering in the form of extreme storms, floods and heatwaves.
We believe this has got to stop – and institutional investors agree.
Investors called on banks to step up on their climate impact – and they responded
This summer, we teamed up with 115 institutional investors to send letters to 68 of the world’s biggest banks. We called on them to respond to five key investor expectations on climate change and biodiversity ahead of the UN climate talks (COP26) taking place next week.
Our first ask: to publish climate targets covering all relevant financial services that are aligned with global efforts to hold temperature rise below 1.5 degrees Celsius.
Forty-four banks responded to our call (see below). Of these, 19 confirmed they would publish new climate targets ahead of COP26, the end of the year, and/or their 2022 AGM. This includes BBVA, BNP Paribas, Citigroup, and Standard Chartered.
In fact, these timelines are faster than those demanded by the Net-Zero Banking Alliance - a voluntary alliance of banks launched by Mark Carney in April 2021, which many of these banks signed up to.
The Alliance gave its signatories 18 months to publish their first round of targets. That’s way too long – and it is highly encouraging to see these banks commit to a faster pace.
But as always, the devil will be in the detail.
Will these climate targets put banks on the road to net zero?
Our latest analysis of the climate practices of Europe’s largest 25 banks found just three banks (Lloyds Banking Group, NatWest and Nordea) have committed to halve their financed emissions by 2030.
This milestone is vital to ensuring a clear path to net-zero by 2050.
Furthermore, eight banks have set interim targets for the most carbon intensive sectors, but only one (Barclays) has set an absolute target for its fossil fuel portfolio.
On top of this, most banks still fail to cover capital market underwriting activities in their targets. That’s despite 65 per cent of banks’ fossil fuel financing coming from capital market underwriting.
And most concerning, most banks seem to think that by setting sectoral targets they can get away with not updating their fossil fuel policy.
Banks must wake up to reality - net zero means no new fossil fuels
Setting sectoral targets – despite being essential to a bank’s transition plan – is insufficient to stop them financing some of the most egregious fossil fuel companies.
A bank, for example, can decrease the total emission intensity of their portfolio of clients in a specific sector by ‘offsetting’ the financing to fossil fuel companies with financing to renewable energy companies.
Furthermore, even where banks set absolute targets, they alone do not prevent the financing of specific companies – such as fossil fuel expansionists.
This is why we call on banks to complement these targets with robust sectoral policies, starting with the power and energy sectors.
To start, we called on them to publish robust coal policies ahead of COP26. These should include a commitment to stop financing coal developers and to phase out from coal by a specific date.
Banks’s responses have been more lukewarm on this front.
This is perhaps unsurprising. A recent analysis by Bloomberg showed that not only are they not quitting fossil fuels, by the likes of JPMorgan, Bank of America, and Citigroup continue to earn the most fees from the coal, oil and gas industries.
As such, many banks remain reluctant to translate their long-term ambition with their fossil fuel policies – even where they choose to use scenarios aligned with this ambition.
Take for example Santander. It made headlines earlier this year by setting targets based on the IEA’s (the international authority on energy who’s scenarios are used by governments, companies, and financial institutions) newly released net-zero scenario.
The scenario gives a 50 per cent probability of reaching net zero. But even then, its findings were clear: 1.5 degrees Celsius means no new fossil fuels and a rapid decarbonisation of the power sector.
On the face of it this was a bold move by Santander. Yet the bank failed to update its fossil fuel policies to reflect these findings. This is concerning as the bank has not even done the basic minimum of committing to a full phase out of coal-fired power.
Similarly, HSBC has committed to using the IEA Net-Zero scenario when developing the targets it has committed to set by the end of the year. So far, the bank has not indicated whether it would fully embed the conclusions of the IEA Net-Zero scenario across its strategy and fossil fuel policy.
Banks must go all in – the climate crisis demands action
Despite lofty claims, banks remain some of the leading financiers of fossil fuels.
This puts the sector at odds with global momentum to avert the worst impacts of the climate crisis.
It doesn’t have to be this way.
Banks could hold the key to unlocking the transition to a net-zero future.
What’s more their customers and investors demand it.
As the eyes of the world look to Glasgow, global bank can positively influence the climate talks.
As they prepare for the summit’s Finance Day on the 3 November, they can walk the talk and announce ambitious and bold new fossil fuel policies and targets.
The real question will, will they be brave enough?