Europe’s banks lag on climate and biodiversity

IFR 2464 - 17 Dec 2022 - 6 Jan 2022
4 min read
Tessa Walsh

Europe’s top banks are falling short on climate and biodiversity action and a lack of transparency means financial institutions are under-reporting their support for high-carbon sectors, according to responsible investment group ShareAction.

Europe’s top 25 banks have made some progress since 2020 but urgently need to improve many of their practices and close loopholes to meet internationally-agreed standards to tackle the global climate crisis, the lobby group said.

"Despite important steps forward, the leadership of Europe’s top banks are not moving fast enough to drive the change needed to protect people and the planet,” said Peter Uhlenbruch, director of financial sector standards at ShareAction.

ShareAction’s report ranks banks in order of their environmental policies across climate and biodiversity governance, climate risks, climate opportunities, biodiversity strategy, and policy engagement and collaboration with stakeholders.

The average overall score was 42.7% and 19 banks scored less than 50%. In many cases that was due to low scores on biodiversity, with six banks scoring 20% or less, and three scoring less than 15%.

BNP Paribas was the top performer overall and the only bank to get a B+ rating. But with a score of 63%, ShareAction said the bank “still has a long way to go” and this showed that leading practices in the sector continue to fail basic tests on climate and diversity.

The top three banks were French, with Societe Generale second at 56% and Credit Agricole third at 51%. Both banks had B ratings. Only six banks achieved 50% or more, including ING in fourth place with 51%, Barclays in fifth with 50% and Lloyds in sixth with 50%.

The lowest rating was achieved by DZ Bank, with an overall score of 29% and a D+ rating. Deutsche Bank was the highest German bank at 42% with a C+ rating, while Commerzbank rated 33% and C.

All of Europe’s top 25 banks have committed to net-zero by 2050 at the latest, but only six banks have backed these long-term goals with interim commitments to cut emissions across financing activities.

Twenty-one banks have set at least one sectoral decarbonisation target, although the targets often fail to capture the bulk of banks’ financing to high-carbon sectors and do not always lead to absolute reductions of emissions, the report said.

The quality and scope of these targets vary widely, however. Banks have prioritised setting sector targets for oil and gas and power generation, and at least one segment of the transport sector (automotive, aviation, rail, shipping). But only one bank published a target for agriculture and no bank has covered the chemicals sector.

Most targets are intensity-based – including 20% of oil and gas targets – despite the need to cut absolute emissions. Only Barclays covers capital markets activities in its targets, even though this accounts for the bulk of European banks’ financing of top oil and gas expanders.

Banks' fossil fuel policies are still full of loopholes that make them unfit for alignment with the goals of the Paris Agreement to limit global warming to two degrees Celsius of global warming or less.

Despite more than three-quarters of banks committing to phase out from coal, banks’ thermal coal policies include gaps that allow them to continue financing coal clients, and in oil and gas the banks' progress has been much slower.

In addition, the vast majority of banks lack adequate biodiversity strategies and are failing to include biodiversity in their risk analysis when assessing potential clients and projects.