In what might be best described as climate finance Groundhog Day, this week saw the launch of the Net-Zero Banking Alliance (1), endorsed by 43 leading banks from 23 countries (2), alongside a new Glasgow Financial Alliance for Net Zero (GFANZ) established by Mark Carney. The banks include European giants like Barclays and BNP Paribas, alongside the likes of HSBC, Deutsche Bank and MorganStanley.
In truth, this seems another glossy initiative in a long line of ‘green finance’ alliances which are big on talk and short on action. However, in a spirit of generosity we will look first to the positives of the NZBA.
Thus we welcome the fact that NZBA banks commit to use decarbonisation scenarios that are no/low overshoot and “rely conservatively on negative emissions technologies” (3). Importantly, this recognizes that relying on negative emission technologies is not how we will keep global warming to 1.5C. However, phrases like ‘relying conservatively’ on negative emissions and having ‘reasonable assumptions’ are open to interpretation, leaving space for banks to cover up a lack of ambition with discredited carbon accounting schemes.
This speaks to several fundamental flaws in the NZBA, which together suggest this is more about painting the status quo green, rather than any genuine spur to climate action.
Taking their time
We are in a climate emergency – every year counts. According to the UNEP production gap report, we need to reduce global fossil fuel production by 6% each year from 2020 to 2030 to limit global warming to 1.5°C. Yet astonishingly, the NZBA gives its members three years, until 2024, to set and publish plans to meet 2030 and 2050 emissions reduction targets (for the emissions embedded in their financing). What we really need is targets for the reduction of financed emissions, including starting the phase-out of fossil fuels, this year.
The Fossil Fuel Elephant in the Room
That speaks to the elephant in the room which the NZBA steadfastly ignores: phasing out fossil fuels. The recent Banking on Climate Chaos report shows that 15 of the largest banks that have now joined the NZBA together poured US$ 1.2 trillion into fossil fuels since 2016 – including Europe’s largest fossil fuel financier since 2016 (Barclays) and the bank with the largest increase in fossil finance last year (BNP Paribas) (4).
In a shameful if unsurprising turn of events, however, this alliance requires no explicit commitment from adopting banks to immediately start tackling their financing of fossil fuels. There isn’t even a requirement to end coal financing, the basic litmus test of climate action. Instead, all we get are distant targets, set in a distant time.
This indicates that net zero commitments for 2050 alone are no substitute for taking action on fossil fuels in 2021 — instead banks must immediately end support for any fossil expansion, and commit to the date by which their overall fossil fuel financing will reach zero.
All this speaks to a central flaw in the NZBA, one shared by many such initiatives – it fundamentally lacks enforcement capacity, rendering it largely toothless. From fossil fuels to deforestation, the NZBA ignores the material steps that will need to be taken to address the current crisis. Indeed, many European banks have already gone beyond the steps laid out in the guidelines. On the contrary, while the NZBA’s guidelines cover lending, the adoption of targets on underwriting is only encouraged. Banks actually provide more financing to the fossil fuel industry through thos off-balance sheet activities, with roughly 65% of bank financing for fossil fuels in 2020 being through underwriting (5). Allowing those services to slip through the cracks from any net zero commitment leaves a giant gap.
Moreover, of these 15 banks, nine have already adopted a net-zero by 2050 target in place, or announced that they will do so by 2022. This issue is similar to the one found in other NZ alliances, and one that we can certainly expect from the Net-Zero Insurance Alliance (NZIA) which is expected to be launched at the 2021 UN Climate Change Conference in Glasgow this November (COP26). For now, seven insurers and reinsurers have announced their participation to the coalition : AXA (NZIA Chair), Allianz, Aviva, Munich Re, SCOR, Swiss Re and Zurich Insurance Group. Most of them have already have relatively strong coal policies and have already committed to align their business with the Paris goals. One thing is certain: they have the opportunity to avoid doing the same mistakes of the already existing NZ alliances and announce something bold at the CO26. A tip: a commitment not to provide coverage for the expansion of new oil and gas projects is the necessary first step for any meaningful net zero commitment.
Lucie Pinson, founder and executive director of Reclaim Finance, said: “Another day, another net-zero initiative. It’s becoming hard to keep track of them but one thing is certain – the banking and financial net-zero alliances launched today aim more to give their members cover than to undertake new measures to protect the climate. How else to explain the lazy timelines, failure to require even an end to coal financing, or the inclusion of two of Europe’s biggest fossil fuel financiers in Barclays and BNP Paribas? When it comes to climate, actions speak louder than words – that means comprehensive measures to phase out fossil fuels. Nothing less will do.”