Banks on track to be climate reduction underachievers

Published: January 24, 2025

Most major banks claim to be on track to meeting their net zero ambitions. But a new report casts doubt on this claim, pointing to ‘incoherent’ climate targets.

These days, you’d be hard pressed to find a bank that didn’t trumpet its ESG ambitions. As the world edges towards a low carbon economy, it’s clear that banks have an essential role to play. They have responded with a raft of climate targets, including plans to phase out fossil fuel financing, support clean energy clients, and reach net zero emissions by 2050. 

Despite the progress that has been accomplished in recent years, accusations of greenwashing have never been too far away. Most recently, the UK-based NGO ShareAction published a report on the climate targets of Europe’s 20 largest banks. It painted a damning picture, arguing that their targets are ‘incoherent’ and ‘low ambition’, and that methodological clarity is sorely lacking. 

“In a nutshell, we found that banks’ climate targets are not fit for purpose,” Xavier Lerin, senior research manager at ShareAction, tells EMEA Finance. “These targets, despite banks’ stated Net Zero ambitions, are unlikely to shift sufficient capital from polluting activities to sustainable ones and avoid the most catastrophic impacts of climate change.”

 

Where European banks are falling short

The report, Mind the strategy gap: How disjointed climate targets are setting banks

up to miss net-zero, highlighted two types of climate target – decarbonisation and sustainable finance. The former includes targets to reduce emissions, whereas the latter includes targets for financing green activities. While banks should ideally be looking to align the two, ShareAction noted a glaring disconnect.  

“This makes it difficult to understand how banks intend to drive green investment to achieve emission reductions, and it could create misaligned incentives, in our view,” says Lerin. “For example, if a critical sector like energy is not transitioning quickly enough, will the bank engage with its clients with the urgency needed, or will [it] simply retrench from this sector to meet its emissions targets?”

He adds that just 13% of sustainable finance targets are rooted in a clear and robust methodology. This can make it challenging for stakeholders to gauge whether targets are truly ambitious, or simply designed to appear so. 

One important point of comparison is the International Energy Agency’s Net Zero Emissions (IEA NZE) scenario. Under this roadmap, banks will need to aim for a 10-1 ratio of clean energy versus fossil fuel investment by 2030. Based on ShareAction’s analysis, Nordea and NatWest are the only two banks examined that are on track to reach this milestone.

“The Share Action report notes that we are one of only two banks with an energy investment supply ratio consistent with net zero by 2050,” commented a spokesperson for NatWest Group. “In the first nine months of 2024, NatWest Group provided £23.5bn of Climate and Sustainable Funding and Financing to our customers and we are within sight of reaching our ambition to provide £100bn between 1 July 2021 and the end of 2025.”

ShareAction’s report emphasises that banks lack transparency as well. Many banks claim that they’re on track to achieve emissions reductions targets. But they typically don’t explain how they calculated those figures. “Basically, banks can prioritise optics over substance,” Lerin says.

At the same time, banks’ headline sustainable finance targets may not be as impressive as they sound. For instance, HSBC has set one of the largest targets in the sample, having put aside US$1tn for green financing in the years up to 2030. The NGO determined that this sum comprised only 1.8% of the bank’s total assets, lower than the median target of 2.4%. ð

“Stakeholders interested in banks’ climate strategies shouldn't just look at the big numbers, but at what they cover,” says Lerin. “Banks are often saying that they're meeting their targets years ahead of schedule. So this sounds really positive, but the climate targets are disconnected from [the] real economy or real world impacts.” 

 

US banks big numbers, underwhelming progress

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