Banks are coming under increasing pressure to stop financing new fossil fuel expansion as pressure groups say that the new targets that banks are setting on the emissions they finance are still not going far or fast enough.
Deutsche Bank and Societe Generale recently announced targets to reduce emissions from their highest-emitting sectors, but the portfolio targets only give a partial picture as they do not cover "facilitated emissions" from underwriting and other capital market activities.
Lloyds Banking Group went a step further by saying that it will no longer support direct financing of new oil and gas developments – either project financing or reserve-based lending – but this does not cover "general corporate purpose" financing that makes up the vast majority of its exposure.
Pressure groups are frustrated with the slow progress and varying financed emissions targets, including the use of carbon intensity metrics that allow fossil fuel expansion. They are calling for banks to set absolute financed emissions targets with precise carbon targets and publish policies restricting corporate finance for new fossil fuels.
"We have no way of knowing how banks will reach their targets. We are not seeing financed emissions targets being backed up with strong policies directing banks' decision-making on fossil fuel clients," said Beau O’Sullivan at campaign group Bank on our Future, a network of non-governmental organisations.
“They have to be dragged into the conversation around actually leaving fossil fuel deals on the table and it's very hard for institutions to be held accountable."
Banks are publishing financed emissions targets to meet their commitments under the Net Zero Banking Alliance, part of the Glasgow Financial Alliance for Net Zero, ahead of the UN’s COP27 climate meeting in Egypt in November.
NGOs are ramping up action as banks continue to fund fossil fuel clients. BNP Paribas is facing legal action from French NGOs demanding that the bank stop support for new oil and gas projects, a move that could result in the first climate litigation to hold a commercial bank to account if BNPP fails to comply.
“We need to see policies on no oil and gas expansion and a restriction of financing at the corporate level to companies that are still exploring new oil and gas," O’Sullivan said.
Roughly 60% of lenders have yet to set any absolute financed emissions data, according to analysis by Bloomberg Intelligence.
Taking effect?
Although banks’ emissions targets only give a partial picture, the work that banks are doing on their NZBA commitments and new processes that they are putting in place are already having an impact behind the scenes as banks assess clients’ emissions and the impact on their own footprints.
“The businesses have done detailed work on our top emitters, we know where they are,” said Joerg Eigendorf, chief sustainability officer at Deutsche Bank.
This is leading to some “quick wins” by spotting some big emitters that generate little revenue, but crucially it is creating the concept of a carbon budget that needs to be allocated between clients with careful consideration of the impact on banks’ own Scope 3 emissions.
"We have a carbon footprint now and the CO2 needs to be budgeted; you need to have controls in place and this is another indicator which will influence decision-making. More and more over time, business has to make tough decisions and chose whom they want to allocate their carbon budget with," Eigendorf said.
Although it is difficult to compare banks’ financed emissions and carbon footprints, GFANZ is working on a new “data facility” with major climate data providers that aims to create common standards and ensure accountability.
It will act as a single repository for data that its members are providing, the targets they have set and their performance against those targets to allow comparison and identify laggards. This data will be available to governments, regulators and society in a year’s time.
“We’re going to have data, we need to have it collected in one place in a consistent way that is available to everyone,” former Bank of England governor Mark Carney said, addressing the UK parliament’s environmental audit committee. Carney is co-chair of GFANZ and UN special envoy for climate action and finance.