19 September 2024, Most bank decarbonization targets are not fit for purpose and need to be redesigned to deliver effective emissions cuts, Reclaim Finance finds, following a detailed analysis of the sectoral targets set by 30 of the largest banks in the UN-convened Net Zero Banking Alliance (NZBA) (1). The report, published as delegates gather in New York for the UN Summit of the Future, identifies 13 different target types used by the banks, but finds that only two of these are likely to deliver real-world emissions reductions. The NGO is urging banks to rethink their targets, and in particular to jettison the widely used \u201cfinanced emissions\u201d and \u201cfacilitated emissions\u201d targets. Reclaim Finance also wants regulators to take a more robust approach to assessing decarbonization targets within bank transition plans.<\/p>\n<\/div>
Reclaim Finance analyzed 243 decarbonization targets set by banks as part of their commitment to cutting greenhouse gas emissions. These targets are supposed to play a key role in reducing emissions from the bank\u2019s clients in the most carbon-intensive sectors such as oil and gas, coal, power generation, steel, aluminum and real estate.<\/p>\n
The analysis, which includes a foreword by Ilmi Granoff, Senior Fellow at the Sabin Center for Climate Change Law (2), shows an unnecessarily complex, confusing and opaque mix of target types, most of which fail to create a direct link between achieving targets and corporate emission reductions, because they link emissions to unrelated financial measures. Within each target type, many individual targets are incomplete (not applied to all sectors or to all greenhouse gases), and not adequately disaggregated, mixing different sectors, gases and types of finance.<\/p>\n
Banks also fail to clearly differentiate between the types of targets needed for coal, oil and gas (which must be phased out) and other sectors (like cement, steel and transport) which must be cleaned up.<\/p>\n<\/div><\/div><\/div>
Banks need to ditch their financed and facilitated emissions targets, which fail to track real-world emission reductions. Bank targets are a morass of different methodologies, confused categories and inadequate ambitions. Delivering real-world carbon cuts requires transparent and ambitious targets that send a clear signal to bank clients that they will lose access to bank financing if they do not clean up their act. Banks must reduce lending and capital markets finance for fossil fuel clients and demand robust 1.5\u00b0C-aligned decarbonization strategies from all their emission intensive clients.<\/i><\/p>\n<\/div> Paddy McCully, senior energy transition analyst at Reclaim Finance<\/strong><\/p>\n<\/div><\/div><\/div> In particular, the report finds that targets based on \u201cfinanced emissions\u201d (from lending) and \u201cfacilitated emissions\u201d (from capital markets activities) are of little use in ensuring real-world emission reductions. This is because these types of targets are calculated using corporate value variables. The result is that if the value of the companies in a bank\u2019s sectoral portfolio increases, its financed emissions can fall without the companies in the portfolio reducing real-world emissions.<\/p>\n Six of the target types analyzed, and 80 out of the 243 targets, are based on a variant of financed and\/or facilitated emissions measurements. These target types are especially widely used for targets for absolute emissions from oil and gas portfolios. Twenty-five banks out of the 30 analyzed use financed\/facilitated emissions for at least one of their targets (3).<\/p>\n Targets not based on financed or facilitated emissions may still suffer from other fatal flaws. One particularly egregious example of a target that mixes elements which should logically be separate is JPMorgan Chase\u2019s energy intensity mix target which covers oil, gas and clean energy \u2013 allowing it to achieve its target by increasing finance for clean energy, but without reducing finance for oil and gas.<\/p>\n Just two existing types of targets were identified as meaningful for delivering real-world emissions targets:<\/p>\n Reclaim Finance is urging banks to adopt two other target types:<\/p>\n No single type of decarbonization target is sufficient to adequately capture what banks must do, and must require from their clients, to achieve real-world decarbonization. Targets must be just one part of a bank\u2019s comprehensive transition plan which must also include sectoral, client engagement and clean finance policies.<\/p>\n<\/div><\/div><\/div> Banks that claim to be serious about climate leadership must work with the NZBA to push for the widespread adoption of targets that are fit for purpose. Regulators must also take note and ensure target integrity as part of their supervision of financial institution climate transition plans.<\/i><\/p>\n<\/div> Paddy McCully, senior energy transition analyst at Reclaim Finance<\/strong><\/p>\n<\/div><\/div><\/div> Some financial regulators, most notably in the EU, already require companies to disclose their climate targets as part of their supervision of bank transition plans. Reclaim Finance urges regulators to not only require disclosures, but also assess the robustness of the design and implementation of targets.<\/p>\n<\/div>\n
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