14 March 2024 – The Net-Zero Banking Alliance (NZBA) has released an updated version of its 2021 guidelines for setting climate targets (1). This is the only broadly accepted industry standard for how banks should align their activities with 1.5°C. The NZBA remains the only net-zero alliance which requires its members to set targets for the highest-emitting economic sectors. Reclaim Finance is calling on banks both inside and beyond the alliance to show greater ambition in their climate targets.
The new guidelines require for the first time that NZBA signatory banks should set 2030 targets for the “facilitated emissions” from their underwriting and other capital markets activities in addition to targets for the “financed emissions” from their lending. As the NZBA points out, for some banks facilitated emissions can be higher than financed emissions. Roughly half of bank finance to the fossil fuel sector in recent years has come from capital markets activities (2).
Finally requiring its member banks to set 2030 targets for the emissions from their underwriting and other capital markets activities is a positive step forward for the NZBA. But overall the new guidelines are a missed opportunity to lay out what is required for banks to align their financing with 1.5°C.
Patrick McCully, senior analyst at Reclaim Finance
Banks are allowed to combine their financed and facilitated emissions into a single target and are not required to report them separately. But Reclaim Finance warns that combined targets and disclosures will make it impossible to assess what progress banks might be making in each of these areas. What is more, the two categories use different methodologies for reporting facilitated and financed emissions, with banks allowed to use a 33% weighting for facilitated emissions, while 100% of financed emissions must be counted (3).
There is an element of two steps forward, one back in requiring facilitated emissions targets, but then allowing them to be blended into lending targets. This is an attempt to blend apples and oranges. As banks have long maintained, these are different types of finance; and the emissions are calculated using different methodologies.
Patrick McCully, senior analyst at Reclaim Finance
There is little else new of substance in the revised guidelines. New expanded language on bank transition plans reflects the increased attention currently given to transition plans in regulations and standards, but the only requirement is for banks to publish a “high-level transition plan” which “may be a part of existing disclosures.” This is so vague as to be of little use in committing banks to any meaningful actions.
The vagueness of the previous guidance on targets led to its members setting a dog’s dinner of widely divergent target designs, with different levels of ambition, comprehensiveness and transparency. The updated guidelines still fail to require robust methodologies that would help ensure that banks set ambitious and comparable targets.
Patrick McCully, senior analyst at Reclaim Finance
There are concerns that the big US banks lobbied against stronger guidelines (4). Some members of the NZBA, however, wanted to go further than these guidelines (5) and Reclaim Finance is urging banks both inside and outside the alliance to show more ambition than required by the NZBA and set 1.5°C transition plans containing a range of transparent and comprehensive absolute emissions and financial targets, as well as strong policies on fossil fuels and financing of sustainable energy.
