Investors increase pressure on banks over net zero targets

On the 04/20/21 at 5:26PM


Adrien Paredes-Vanheule

Some 35 investors together published net zero carbon expectations for the banking sector on Tuesday 20 April.

Some 35 investors with a total $11trn in assets under management have called on banks to align their financing with net zero carbon emissions but also to withdraw from projects that do not meet Paris Agreement goals. The coalition has hit out at 27 major banks* in particular, under the auspices of the Institutional Investors Group on Climate Change (IIGCC).

The Intergovernmental panel on climate change (IPCC) assesses some $3.8trn (€3.1trn) per year are needed to ensure the low carbon transition for supply-side energy system investments alone. Nontheless, the world’s largest 60 banks have plugged that same amount into the financing of fossil fuel companies between 2016, year of the Paris Agreement, and 2020, according to a report released in March 2021 by a group of climate NGOs.

Among other expectations, the investors, which are asking for the banking sector to scale up green finance, want banks to commit to set clear net zero targets by 2050 or before while focusing primarily on bringing down indirect emissions (scope 3) to net zero. HSBC had already been forced by tens of investors to set a strict net zero roadmap at the start of the year. Moreover, in the investors’ view, banks’ boards of directors shall be accountable for the delivery of a strategy in line with net zero objectives and board members’ variable remuneration shall be aligned with these targets.

Pressure is also on audit firms

Besides, the coalition expects from banks to release disclosure based on the recommendations of the Task force on Climate-related Financial Disclosures (TCFD).  That encompasses reporting on greenhouse gas emissions associated with financing activities and integrating material climate risks in published interim accounts (both unaudited and audited).

Similarly, pressure is on the audit companies since the coalitions requires from them to sound the alarm towards shareholders if the accounts of a bank are not Paris Agreement-aligned. The call signatories also want banks to set explicit criteria for the withdrawal of financing to misaligned activities. These criteria would be benchmarked against sector or industry net zero pathways.

IIGCC’s chief executive officer Stephanie Pfeifer commented, “With fossil fuel financing increasing since 2016, the time to act is now. Investors are calling on banks to make enhanced net zero commitments, with clear interim targets, focused on reducing their indirect emissions to zero. Organisational net zero commitments will not have the impact needed – just as asset managers and asset owners are making commitments focused on their portfolios rather than their direct emissions.”

Commenting an “unequivocal” message sent to banks, Natasha Landell-Mills, head of stewardship at Sarasin & Partners, said, “the problem we face today is that too many banks are failing to consider climate harm when they make financing decisions, and too much money is being ploughed into carbon-intensive activities that we so desperately need to move away from.”

*The targeted banks in IIGCC’s initial campaign include : Agricultural Bank of China, Bank of America, Bank of China, Bank of Montreal, Barclays, BNP Paribas, China Construction Bank, CIBC, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Groupe Crédit Agricole, HSBC, Industrial and Commercial Bank of China (ICBC), ING Bank, JP Morgan Chase, Mitsubishi UFJ FG (MUFG), Mizuho FG, Morgan Stanley, Royal Bank of Canada (RBC), Scotiabank, SMBC Group, Société Générale, Toronto Dominion (TD), UBS, Wells Fargo.

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