Investors pressure banks to enhance their own Net Zero targets

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– 43 banks joined together to form the “Net Zero Banking Alliance” with guidelines with emissions reductions targets in an effort to attempt to be net-zero by 2050.
– Critics point out that the guidelines are optional – and also don’t deal with many issues that are critical in the effort to combat climate change.
– Critics also point out that the same banks continue to finance fossil fuel and other carbon-heavy industries.
– Four of the biggest banks on Wall Street — Morgan Stanley, Bank of America, JPMorgan and Citigroup — have pledged $6 trillion in sustainable finance. The billions of dollars they’ll save in taxes is just one of the benefits.

Here’s a note from Andreas Posavac about this announcement:

It’s out, next escalation on say-on-climate. The Institutional Investors Group on Climate Change (IIGCC) with its leading institutional investor members call on banks to align with the Paris agreement and set net zero targets. After last week’s general announcement of the expectations from banks, the investor collective is specifically targeting some of the largest international banks in their initial campaign, with tough expectations:

– holding the entire board accountable for strategy alignment to net zero
– aligning executive compensation with net zero targets in the variable remuneration packages
– requiring audit committees to ensure climate risks are considered in financial statements
– scaling up their green finance initiatives
– withdraw from projects that fail to meet the Paris goals
– participate in the development of the assessment of the Paris alignment benchmark
– step up their climate governance initiatives & disclosure

Expect investor engagement and capital market pressure from both equity and debtholders to facilitate change, especially at these large financial institutions. Ripple effect included.

This ShareAction piece is entitled “Racing to Net-Zero at a Snail’s Pace: The Launch of the Net-Zero Banking Alliance.” Here’s an excerpt:

But the Guidelines remain suspiciously quiet on this – and many other issues, including:

  • The need for coal and fossil fuel phase out plans
  • Biodiversity loss and deforestation
  • The ‘Just transition’ (a shift from a high to low carbon society that is fair and equitable for workers and communities)

Three essential issues that should form the backbone of any credible climate strategy. The failure to include them raises serious doubts about the value this initiative adds.

And then see this note from Positive Money’s David Barmes about this article from “The Guardian”:

I shared some thoughts with The Guardian and Financial Times this morning on the new ‘Glasgow Financial Alliance for Net-Zero’. Certain aspects of this initiative should be welcomed, but…

“It’s difficult to take these net zero pledges seriously when the world’s biggest private sector banks have financed fossil fuels to the tune of £2.7 trillion since the adoption of the Paris agreement. Mark Carney leading the initiative is not very reassuring either, as he recently appeared unclear what net zero means.

More voluntary alliances filled with repeat greenwashing offenders is not enough – we need urgent action from regulators such as central banks to ensure the entire financial system is aligned with the legally binding environmental targets governments have committed to.”

And then there’s this excerpt from this Bloomberg Green piece:

You will note something about those four announcements—they’re all from very large, diversified banks with global footprints. Diversified banks are worth watching not just because they’re big, but also because they do everything: asset management, debt underwriting and equity raising, investment banking, commercial banking, and retail activities. There aren’t very many of them—Bloomberg tracks only 22 with market capitalization greater than $10 billion as of the end of last year—and they’re quite a stable cohort.

These banks have set their commitments over a long-time span. Three decades from now is well past when any current chief executive can be expected to still be in place—meanwhile the hard part will be the tail end. It’s relatively easy to invest trillions in new zero-carbon initiatives. It’s much harder to decarbonize a portfolio and rotate out of high-emitting holdings while also investing in assets that remove carbon from the atmosphere.

Of course, these announcements could just be noise meant to curry favor with one constituency or another. So how should we evaluate them? One way is to put these big bank priorities into context over time, using Bloomberg data to analyze banks’ past public statements on climate.

Were you to do that, here’s what you’d find:  From 2012 to 2014, only Bank of America mentioned climate change. But last year, 19 big banks mentioned climate change in a public statement, and 22—that’s every one of them—mentioned sustainability.