Banks have ‘a long way to go’ to reach net-zero, with policy engagement an area of concern

The banking sector “still has a long way to go to align with the 1.5C pathway” of the Paris Agreement, according to a new investor-led framework that examined the approaches of banks to net-zero across key areas including targets, governance and policy engagement.

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Banks have ‘a long way to go’ to reach net-zero, with policy engagement an area of concern

Banks performed poorly on outlining steps regarding lobbying and policy engagement

The Institutional Investors Group on Climate Change (IIGCC) in collaboration with the Transition Pathway Initiative (TPI) has published an investor-led framework aimed at examining approaches to net-zero across key stewardship indicators.

The pilot framework assessed 27 banks across six key areas – net zero commitments; short- and medium-term targets; decarbonisation strategies; climate governance; climate policy engagement; and audit and accounts.

The framework found that while some banks are progressing on decarbonisation strategies by scaling up green finance, the sector is lacking established financing conditions to actual enforce targets.

The 27 banks analysed performed best on climate governance, which evaluated how a bank had incorporated climate action into strategies.

The IIGCC’s chief executive Stephanie Pfeifer said: “The emerging picture, based on pilot indicators, is of a banking sector that needs to substantially accelerate its decarbonisation efforts to align with a 1.5°C pathway. Given the integral role banks play in directing capital across entire economies, aligning banks’ activities with net zero is key to delivering global decarbonisation.”

“For investors considering their own net-zero alignment and stewardship of portfolio companies, it is critical that they have sufficient information on companies’ transition planning, including banks. The final framework – which we look forward to publishing later this year – will provide investors with a comprehensive picture of banks’ net zero transition plans and can be used to support engagements with the banks in their portfolios.”

Hidden lobbying

With investors wishing to manage their own portfolios in alignment with net-zero, they also recognise the influence they have to deliver wider change through engagement and activities

However, the research found that the 27 banks performed worst on “policy engagement” with not one bank publishing a position statement on lobbying activities to ensure they are in alignment with the Paris Agreement. Auditing and accounts were also flagged as areas of concern.

Separate research published at the start of the month found that one in every five cases of corporate risk incidents linked to environmental, social and governance (ESG) issues stems from greenwashing and misleading communications.

RepRisk, a leading ESG data science firm, analysed ESG risk incidents, ranging from a potential violation by a company or specific project of global standards and frameworks. RepRisk found that, over a two-year period, one in every five of these risks was linked to greenwash.

Lobbying and offsetting were identified as two of the major contributors to cases of greenwashing. While the role of offsets and potential greenwashing side effects are well documented, lobbying is much harder to uncover and isn’t often included in self-disclosure.

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