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Recently, the Net-Zero Banking Alliance (NZBA) published the second version of its Guidelines for Climate Target Setting. Three years after the launch of the Alliance and the publication of the first version of the Guidelines, the 142 member banks of the alliance, together representing 40% of global banking assets, voted to “reinforce the guidelines”. This new version will enter in force on April 22, 2024.
The Net-Zero Banking Alliance defines itself as a group of leading global banks committed to financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050.
The NZBA has referred to its Guidelines as “a foundational underpinning to the central commitment of the Alliance”. All NZBA members have committed to reach net zero emissions in their lending and investment portfolios by 2050, in line with the goal of the Paris Agreement of limiting global warming to 1.5ºC. The new guidelines are meant to help member banks set intermediate decarbonisation targets (2030 or sooner) aligned with their long-term 2050 climate objective.
With this in mind, the new version of the Guidelines goes slightly further than the original, as it explicitly mentions that targets shall not only cover lending and investment activities of banks but shall also include their capital markets arranging and underwriting activities (both equity and debt). This is positive, given that for many banks this forms a key part of their portfolio, but member banks have until November 2025 to make these changes in their target setting. Besides, facilitated emissions associated with capital markets activities will probably be calculated following the new methodology developed by the Partnership for Carbon Accounting Financials’ (PCAF) which would allow banks to under-report their real climate impacts.
In a good move, the new Guidelines explicitly refer to the core objective of limiting global temperature increase to 1.5ºC, whereas the original version quoted the more aspirational Paris Agreement objective to “limit global temperature increases to well below 2ºC from pre-industrial level and striving for 1.5ºC”.
However, it will be hard for a bank to achieve these targets by following the new version of the Guidelines. For instance, they encourage banks to disclose sector-specific information, including “exclusions and prohibited activities, such as the exploration or production of oil and gas in protected areas”. Considering the incompatibility of any new oil and gas exploration projects with a 1.5ºC scenario, the NZBA should have not limited its recommendation to only oil and gas production in protected areas.
Furthermore, the non-binding nature of these Guidelines has created major discrepancies among targets set by member banks – as highlighted in BankTrack’s NZBA tracker. The NZBA even acknowledged the very problematic target-setting challenges faced by its members – such as the usage of scenarios that are not aligned with 1.5ºC, and the lack of disclosure of absolute emissions and coverage of targets, as required by both the old and new guidelines.(4)
The key failure of the previous NZBA guidelines is the lack of consistency between member banks’ sectoral intermediate targets and their net-zero commitments. Indeed, while intermediate targets should support net-zero by 2050 emissions goal, many banks that are on track to achieve their 2030 targets are still financing fossil fuel activities that are incompatible with net-zero by 2050.
Unfortunately, the new version doesn’t address these issues. Given the recent consequences of an antitrust pushback from some US politicians, that has led four US banks to leave the Equator Principles, the NZBA took the decision to insist on the individual and independent nature of target setting by its members and to grant even more latitude to its members. Besides, the coexistence of targets following the original guidelines and the new ones until November 2025 will create even more confusion and less comparability between member banks’ targets.
The new version of the Guidelines has already received public criticism from its most progressive members (Amalgamated Bank, Ecology Building Society, Triodos Bank). Despite some key improvements as the addition of capital markets activities to the scope, the second version of the NZBA Guidelines has not brought in elements that could have ensured a stronger consistency of banks’ intermediate targets with their net-zero by 2050 objective.
BankTrack urges all NZBA member banks to not only implement the new guidelines in good faith and set intermediate targets fully aligned with their overall net zero goal, but also to move beyond these Guidelines and to exclude finance for any company that is still developing new fossil fuel projects.
With the global climate crisis deepening every day, it is time to do more, better, faster and stronger. Later is too late, while banks can be pivotal in protecting the planet for current and future generations - if only they are prepared to act urgently and decisively on the climate crisis.
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The NZBA has referred to its Guidelines as “a foundational underpinning to the central commitment of the Alliance”. All NZBA members have committed to reach net zero emissions in their lending and investment portfolios by 2050, in line with the goal of the Paris Agreement of limiting global warming to 1.5ºC. The new guidelines are meant to help member banks set intermediate decarbonisation targets (2030 or sooner) aligned with their long-term 2050 climate objective.
With this in mind, the new version of the Guidelines goes slightly further than the original, as it explicitly mentions that targets shall not only cover lending and investment activities of banks but shall also include their capital markets arranging and underwriting activities (both equity and debt). This is positive, given that for many banks this forms a key part of their portfolio, but member banks have until November 2025 to make these changes in their target setting. Besides, facilitated emissions associated with capital markets activities will probably be calculated following the new methodology developed by the Partnership for Carbon Accounting Financials’ (PCAF) which would allow banks to under-report their real climate impacts.
In a good move, the new Guidelines explicitly refer to the core objective of limiting global temperature increase to 1.5ºC, whereas the original version quoted the more aspirational Paris Agreement objective to “limit global temperature increases to well below 2ºC from pre-industrial level and striving for 1.5ºC”.
However, it will be hard for a bank to achieve these targets by following the new version of the Guidelines. For instance, they encourage banks to disclose sector-specific information, including “exclusions and prohibited activities, such as the exploration or production of oil and gas in protected areas”. Considering the incompatibility of any new oil and gas exploration projects with a 1.5ºC scenario, the NZBA should have not limited its recommendation to only oil and gas production in protected areas.
Furthermore, the non-binding nature of these Guidelines has created major discrepancies among targets set by member banks – as highlighted in BankTrack’s NZBA tracker. The NZBA even acknowledged the very problematic target-setting challenges faced by its members – such as the usage of scenarios that are not aligned with 1.5ºC, and the lack of disclosure of absolute emissions and coverage of targets, as required by both the old and new guidelines.(4)
The key failure of the previous NZBA guidelines is the lack of consistency between member banks’ sectoral intermediate targets and their net-zero commitments. Indeed, while intermediate targets should support net-zero by 2050 emissions goal, many banks that are on track to achieve their 2030 targets are still financing fossil fuel activities that are incompatible with net-zero by 2050.
Unfortunately, the new version doesn’t address these issues. Given the recent consequences of an antitrust pushback from some US politicians, that has led four US banks to leave the Equator Principles, the NZBA took the decision to insist on the individual and independent nature of target setting by its members and to grant even more latitude to its members. Besides, the coexistence of targets following the original guidelines and the new ones until November 2025 will create even more confusion and less comparability between member banks’ targets.
The new version of the Guidelines has already received public criticism from its most progressive members (Amalgamated Bank, Ecology Building Society, Triodos Bank). Despite some key improvements as the addition of capital markets activities to the scope, the second version of the NZBA Guidelines has not brought in elements that could have ensured a stronger consistency of banks’ intermediate targets with their net-zero by 2050 objective.
BankTrack urges all NZBA member banks to not only implement the new guidelines in good faith and set intermediate targets fully aligned with their overall net zero goal, but also to move beyond these Guidelines and to exclude finance for any company that is still developing new fossil fuel projects.
With the global climate crisis deepening every day, it is time to do more, better, faster and stronger. Later is too late, while banks can be pivotal in protecting the planet for current and future generations - if only they are prepared to act urgently and decisively on the climate crisis.
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*Policy Analyst, BankTrack
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