Europe’s biggest banks failing to end coal financing despite net-zero climate pledges, report finds

MSCI’s Implied Temperature Rise, analysis shows that less than half (46%) of listed companies align with the 2C target of the Paris Agreement

Published today (6 September) by non-profit ShareAction, the report assesses the banks on their overarching net-zero targets; their disclosures of emissions from high-carbon sectors; their sector-specific decarbonisation policies; their biodiversity targets and how executive remuneration is linked to sustainability.

While 20 of the 25 banks have set a long-term net-zero target that covers financed emissions, the report raises cause for concern about whether adequate plans have been drawn up for meeting them.

Only three of the banks with net-zero targets – namely Lloyds Banking Group, NatWest Group and Nordea – have committed to halving financed emissions by 2030. The Intergovernmental Panel on Climate Change (IPCC) warned in 2018 that, for the world to have the best chance of reaching net-zero by 2050, global net emissions should be at least halved by 2030.

Moreover, fewer than half (12) of the banks have formally committed to end financing for activities relating to the thermal coal sector by the recommended deadlines of 2030 for OECD nations and 2040 for other nations at the latest. Also, at present, just seven of the banks restrict corporate financing for companies that are planning to expand their coal mining portfolios in the coming years.

The report also looks at other fossil fuel financing. It states that only one of the banks assessed – Intensa SanPaolo – has formally agreed to end its exposure to all unconventional sources of oil and gas. This term is used to refer to particularly aggressive extraction methods such as oil sands, Arctic drilling and fracking. While most banks are limiting their direct exposure to these activities, ShareAction claims, many are still providing finance to diversified companies with businesses in these sectors.

ShareAction has additionally noted that, while most banks are now realising that their net-zero targets will not be deemed credible unless they cover financed emissions as well as emissions from operations, the sector is not doing a good job of engaging executives. Most of the banks assessed do link executive pay to sustainability progress in some way, but the majority of this cohort are using metrics relating to operational emissions. This is despite the fact that, according to CDP, the average financial firm’s finances emissions will be 700 times higher than those of their direct operations.

Some notable exceptions to this trend are ING and NatWest, whose chief executives are incentivised to help set climate-related targets for their loan book of clients in specific sectors.

Spotlight on biodiversity

As well as climate, the ShareAction analysis assesses the sector’s approach to nature. It claims that, overall, the approach is “still in its infancy”.

Fewer than half (10) of the banks have an overarching biodiversity policy that applies to all financed activities. None of these policies include a time-bound commitment to zero deforestation.

When it comes to sector-specific policies, less than half (10) of the banks have requirements for no deforestation, no peat and no exploitation for at-risk sectors. None of these requirements are strict.

“There is no excuse for banks which have not yet adopted the leading practices of their peers, though it should also be noted that, in many cases, even the leading practices in the sector continue to fail basic litmus tests on climate and biodiversity,” ShareAction’s senior banking analyst and report author Xavier Lerin said.

“Moreover, no bank demonstrates leading practice on all issues. As such, there is a huge amount that all banks can do right now to address their environmental impacts and we call on them to publish credible climate and biodiversity strategies ahead of COP26.”

Earlier this year, a coalition of 115 investors, convened by ShareAction, wrote to dozens of the world’s biggest banks calling for stronger biodiversity and climate approaches. A similar call to action has been made by the University of Cambridge Institute for Sustainability Leadership (CISL).

Both calls came after a major report, entitled ‘Bankrolling Extinction’, claimed that 50 global banks together provided loans and underwriting worth more than $2.6trn to the food, forestry, mining, fossil fuels, infrastructure, tourism and transport and logistics sectors in 2019. On average, each of the 50 banks was linked $52bn in finance that is causing biodiversity loss risk, according to that report.

Sarah George

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