A new revolution in the global economy is needed to achieve net-zero and keep the world safe from the worst effects of climate change. In the face of the environmental crisis, few institutions can muster resources with the scale and reach of the world’s banks. Banks don’t only respond to financial trends; they can create and shape markets – and their role as market shapers is more important than ever.

Banks have the networks and the influence to help shape the future – to create the conditions for a green economy and all the opportunities it brings. By setting ambitious climate targets, banks can incorporate potential policy changes, new technologies, environmental shocks and economic transformations into their decision making.

While achieving these targets is not entirely within a bank’s control, this is an argument for target setting, not against it. By highlighting where critical parts of their climate strategy depend on the actions of others, banks can make it clear to everyone – including policy makers, regulators, customers and peers – what needs to happen for the net-zero transition.

In our report, we assess the climate targets of the 20 largest listed European banks.

Our analysis focuses on two key areas:

1. Decarbonisation targets: these targets aim to reduce emissions associated with lending and investment portfolios.

2. Sustainable finance targets: these targets focus on increasing financing for climate-friendly activities and those that are transitioning to a greener economy.

Although these two types of targets serve different purposes they should work in tandem, as sustainable financing drives decarbonisation. However, we found that they often lack coherence and fail to adequately address the real-world impacts of financing decisions.

1. Banks’ climate targets are unlikely to shift sufficient capital to achieve net-zero by 2050.

Most banks fail to disclose how sustainable finance targets support their decarbonisation efforts, and sustainable finance targets often lack a clear methodology. As a result, stakeholders can’t determine whether these targets are sufficiently ambitious. We estimate that only two banks (NatWest and Nordea) are on track to align their financing with a $10 to $1 ratio of clean energy to fossil fuel investment that the International Energy Agency says is needed by 2030, based on the sustainable finance targets they have set. The largest targets are not necessarily the most ambitious—for example, we estimate that HSBC’s goal of up to $1 trillion towards sustainable investment by 2030 accounts for just 1.8 per cent of its total assets, below the median target (2.4 per cent) in our sample.

2. Targets to increase sustainable finance are designed to look comparatively more ambitious than targets to reduce emissions.

Of the 18 banks that have set both decarbonisation and sustainable finance targets, 17 include a broader range of products and services in their sustainable finance goals. Only two banks (Barclays and HSBC) include capital markets facilitation in their decarbonisation targets, despite the outsized climate impact of these activities. Five banks (BBVA, CaixaBank Group, Commerzbank, Deutsche Bank and HSBC) have set sustainable finance targets that cover both banking and asset management activities, but keep these activities separate in their decarbonisation targets. Inconsistent accounting practices, such as including only the portion of the loan that has been disbursed in decarbonisation targets and the total amount of the loan in sustainable finance targets, lead to inflated financing volumes in sustainable finance targets compared to decarbonisation targets.

3. The design of banks’ climate targets has led to a mismatch between reported progress and actual progress.

Banks claim that just under a quarter of their decarbonisation targets and 7% of their sustainable finance targets are off-track. However, their fossil fuel financing remains high, and the climate crisis continues to intensify. This suggests a disconnect between their climate strategies and the real-world impacts these should be having. Limited transparency on how banks achieve their targets adds to the problem as stakeholders are unable to assess their actual impact.

Our report includes a blueprint for climate target setting in the banking sector, reflecting our recommendations for how banks can address these limitations. It also includes a table summarising banks’ commitments against our recommendations, and examples of leading practice among the banks in our sample. We encourage banks to benchmark their individual performance and align with peers demonstrating leading practice, where relevant. We also encourage investors to use this information to engage with the banks they hold in their portfolios.

Additional resources:

Dataset for all decarbonisation and sustainable targets analysed for this report can be accessed here.