New research has unveiled that 85 percent of major global banks continue to drive coal investments. Moreover, none of them have pledged to or established a sustainability strategy to phase out coal financing in alignment with the 1.5C warming target. These findings come from the ‘State of Transition in the Banking Sector’ report from the Transition Pathway Initiative (TPI) Centre at the London School of Economics (LSE), which assessed 38 US and international banks.Â
The TPI Centre utilised its Net Zero Banking Assessment Framework (NZBAF) to evaluate the banks’ alignment with decarbonisation benchmarks for various timeframes. This report revealed that just 8 percent of banks have pledged to stop project financing for new gas and oil fields and none have committed to ending all financing for deforestation activities by 2025.Â
Furthermore, no bank has explicitly committed to decarbonising in line with just transition principles. The report spotlights a disconnect between banks’ actions and net-zero targets. The TPI Centre estimates that banks’ targets cover below 22 percent of their revenues, leaving major business segments, especially capital markets, excluded. Moreover, only 19 percent of banks’ pathways align with 1.5C or below 2C targets for the 2028-2035 period.Â
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Lack of short-term and long-term targets
The report also highlighted that banks lack clear short-term and long-term targets for meeting net-zero by 2050. Although many banks recognise climate risks, very few of them integrate these risks into their financial statements. They also fail to disclose how much of their total financing is directed towards climate-related initiatives.Â
In saying that, the report does note regional differences in that European and Japanese banks have set more targets than those in China and North America. For instance, Chinese banks have not set any decarbonisation targets. Among the banks assessed in the report, BNP Paribas, Barclays, HSBC, ING Bank, Agricole, and JP Morgan Chase have set the most targets, covering eight of the 14 assessed sectors.Â
Deutsche Bank, JP Morgan Chase, and ING have the most targets aligned with 1.5C and below 2C by 2035, primarily in the electricity utilities sector. Within the US, only one super-regional bank has committed to reaching net-zero by 2050. None of the other banks have set sectoral decarbonisation targets, and just half have specific sustainable finance targets. Huntington Bancshares, PNC, and Only Fifth Third have disclosed absolute financed emissions, while Truist is the only one to disclose its exposure to high-emission sectors.Â
Conclusion
The findings from the TPI Centre’s latest report underscore the urgent need for sustainable banking to accelerate climate action. While some progress has been made, current efforts are far from sufficient to meet global climate targets.Â
Banks’ hesitancy to phase out coal financing, set comprehensive decarbonisation targets, or disclose their climate-related financing exposes them, and the broader economy, to mounting regulatory, market, and physical climate risks.Â
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