World Resources Institute (WRI), a global research non-profit, has found that, despite growth in the number of banks with net-zero commitments, they are not on track to achieve their goals.
The non-profit built an online tracker to analyse how a sample of 25 banks—including some of the largest by total assets and smaller firms “playing a prominent role on net zero”—are progressing in implementing their commitments.
It found that these banks are off-track to meet net-zero targets, and many of their pledges are “less ambitious than they seem at face value.”
The tracker tool assessed 17 different indicators of these banks’ current climate commitments, with the results indicating that their strategies omit “key elements” that are crucial to an effective strategy. Indeed, the research revealed that when it comes to high-emitting sectors, many have no or weak targets.
It notes that banks should disclose emissions on both an absolute and physical intensity basis to provide a “fuller picture” of how real-world emissions are being reduced.
Alongside this, it found for most sectors, banks, on average, have not aligned their emissions reduction efforts to 1.5-degrees-C pathways and do not expect to do so by 2030.
“Banks often provide little explanation on how they plan to address these emissions gaps and achieve net zero on time,” the Insititute said, adding that banks must avoid “paper decarbonisation,” where, through portfolio reshuffling or market volatility, emissions are reduced on paper.
Green financing also remains too low, it said.
Despite their “headline-grabbing goals” and reported progress, the banks that WRI analysed have averaged a 1.3-to-1 ratio of green to fossil fuel finance since they began reporting their green finance numbers.
Other studies, it said, have found similarly low ratios.
This scale is still far below the 10-to-1 ratio needed.
The research also outlined that while around 70 per cent of those analysed have introduced relevant sustainable finance metrics in the compensation packages of senior leadership, similar incentives are needed throughout the organization to effect change.
“Banks need to reverse course and double down on their net-zero commitments — not only to meet their own climate goals, but also to profit from the new business opportunities tied to the climate transition. Leaning into sustainable finance can also help protect banks against growing climate-related financial risks,” the report noted.