Countdown to COP26: An analysis of the climate and biodiversity practices of Europe’s largest banks
This report analyses how the 25 largest European banks approach five critical climate and biodiversity-related themes:
- Net-zero targets and alignment
- High-carbon disclosures
- Sector policies (fossil fuels, shipping, biomass)
- Executive remuneration
Human-induced climate change is unequivocal and causing widespread and rapid changes to oceans, ice and land surface across the world. Many are irreversible. This is the stark warning of the latest report by the leading authority on climate science – the Intergovernmental Panel on Climate Change (IPCC).
It is still possible to stabilise global warming at around 1.5°C. But it will take “immediate, rapid and large-scale reductions in greenhouse gas emissions”. Those failing to respond can expect to be challenged. In July 2021, 115 investors representing US$4.2 trillion of assets under management and stewardship wrote to 63 global banks calling on them to strengthen their climate and biodiversity strategies. Here, we analyse 25 of the largest European banks to support this effort and catalyse ambitious climate and biodiversity commitments ahead of COP26. While some banks are demonstrating leadership in specific areas, no European bank has a comprehensive plan at the level required.
Race to Zero – many are showing up on the starting line, but few have started to run.
Twenty of Europe’s 25 largest banks have pledged to reach zero-out emissions from their portfolios by 2050 – yet very few have taken the concrete steps to achieve this goal.
Only three banks (Lloyds Banking Group, NatWest and Nordea) commit to halve their financed emissions by 2030 – a vital step to ensure they meet this 2050 goal. Eight banks have interim targets for the most carbon intensive sectors. Yet only three of these use an absolute emissions metric or complement their targets with additional financed emissions disclosures to ensure they lead to an actual decrease in emissions.
A robust coal policy must tick all the boxes – but most are currently full of loopholes.
While reliance on all fossil fuels need to decrease rapidly to avoid the worst impacts of climate change, speciic sectors need to be prioritised. Coal is one of these fuels. Yet, less than half of the banks analysed commit to a phase-out of financing to thermal coal-related activities and even fewer banks are using their influence to make their clients change course. Just seven banks restrict corporate finance for companies developing their coal mining capacities, while just one bank (Crédit Mutuel) has implemented both relative and absolute thresholds for the coal power and mining sector in line with the Global Coal Exit List recommendations.
Net-zero by 2050 means no new oil and gas exploration investments after 2021.
Well-recognised sources like the International Energy Agency (IEA) have confirmed there is no room for fossil fuel development in a 1.5°C pathway – yet no European bank has committed to fully financing new fossil fuel expansion. While most banks now restrict dedicated financing for unconventional sources of oil and gas, such as that extracted from the Arctic, they remain exposed to these activities while their policies lack meaningful corporate thresholds. Just one bank (Intesa SanPaolo) has committed to phasing out its exposure to all unconventional oil and gas sources. Menawhile, only two banks (Danske Bank and NatWest) have started excluding dedicated financing in relation to the development of new oil and gas reserves.
Pressure is ramping up for the shipping industry.
Eleven banks publicly disclose a policy for the shipping sector and ten have signed up to the Poseidon Principles – a framework for integrating climate considerations into lending decisions and promote decarbonisation of international shipping. But much remains to be done. Some banks, such as Societe Generale, may refuse financing due to non-alignment with decarbonisation trajectories, while others, such as Crédit Mutuel, exclude shipping companies with a large coal-related share of revenue. However, only one bank (ING) has disclosed a negative climate alignment score, and there is still a long way to go until banks make it a requirement for their clients in the shipping sector to be aligned with the goals of the Paris Agreement.
The expansion of biomass power infrastructure is damaging our prospects of achieving the goals of the Paris Agreement.
Biomass urgently deserves greater attention from climate conscious financiers. At the point of combustion, wood emits more CO2 than coal, while it takes decades for this carbon to be reabsorbed by forest growth. Yet the sector remains neglected by banks. Only six publish a relevant sector policy and 13 European banks still list biomass as a sustainable form of energy. It is positive that 17 banks exclude wood sourced from some carbon-rich stocks. Rabobank currently discloses the most comprehensive policy, while Crédit Mutuel is the only bank to explicitly reference clients looking to transition from coal to biomass and require them to demonstrate satisfactory plans on sustainable management of resources.
Banks are not yet tapping into the unique opportunity to be ambitious on biodiversity.
The equally grave threat of biodiversity loss is still in its infancy. Just ten of the 25 banks have a biodiversity policy. Rabobank goes further than most by setting ‘expectations’ for clients, that they should not operate in protected areas or damage high conservation value forests. But these expectations do not explicitly prohibit clients from operating in these areas.
This analysis shows the European banking sector still has a long way to go to fully address the systematic risk posed by climate change and biodiversity loss. Investors that are shareholders or bondholders of banks should use their influence to encourage banks to update their climate and biodiversity strategies in line with the recommendations made in this report. We have suggested a list of engagement questions that investors can use in their engagement with banks.