Banks

Financial services companies, as providers of lending and underwriting services to fossil fuel projects and fossil fuel-intensive companies, have the power to accelerate or stall the decarbonization necessary to limit warming to 1.5°C. Given the capital intensity of the oil and gas and electric power generation industries, financial services companies have a crucial role to play in decarbonizing those and other sectors. The Net-Zero Banking Alliance (NZBA), launched in April 2021, now has more than 120 members, representing more than 40 percent of global banking assets. In joining the NZBA, banks must commit to aligning greenhouse gas emissions, including financed emissions, with net zero by 2050 pathways, consistent with limiting global warming to 1.5°C by 2100.

 
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  • The first step for any U.S. bank in aligning its activities to limiting warming to 1.5°C is committing to reducing its Scope 3 financed emissions to net zero by 2050 at the latest. All six of the U.S.-based banks that are both designated as Global Systemically Important Banks and appear among the largest fossil fuel financiers in the annual Banking on Climate Chaos reports have now joined the NZBA, committing themselves to net zero emissions, including financed emissions, by 2050.

    Many banks have also begun setting interim targets, and establishing short- and medium-term milestones. In order for such targets to be considered robust, they must be aligned with 1.5°C scenarios and cover both lending and underwriting activities. Interim targets must also seek to reduce financed emissions on an absolute basis, particularly in the oil and gas sector. Targets that seek only to reduce the emissions intensity of bank financing still allow for absolute financed emissions to rise between now and 2030.

  • Bank exclusion policies for fossil fuel expansion are the most direct indicators for whether banks are committed to taking the near-term steps necessary to realign their financing activities with a 1.5°C world. In order to be aligned with the IEA Net Zero Emissions by 2050 Scenario (NZE), banks must implement policies that eliminate financing for any new fossil fuel production and consumption in line with that scenario.

    Financing for any continued expansion of coal power and coal mining must cease, both for new projects and the companies behind those projects, and financing for existing coal generation must be rapidly phased out between now and 2030 for OECD countries. Arctic and oil sands extraction is inconsistent with limiting warming to 1.5°C, economically marginal due to elevated production costs, and fraught with additional environmental and human rights risks; many global banks restrict financing in these areas.

    Key data sources:

  • Given the challenges to appropriately measuring and disclosing the full scope of banks’ financed emissions, a key indicator of any bank’s implementation of targets and exclusion policies is its recent lending and underwriting activities to the fossil fuel sector. Between 2015, when the Paris Agreement was signed, and 2021, the world’s 60 largest banks have provided $4.6 trillion in financing. While overall fossil fuel financing plateaued in 2021 as the world economy began recovering from the Covid-19 pandemic, there remained a number of banks that substantially increased their fossil fuel financing from the prior year. Banks engaging in increased fossil fuel financing, and continuing to finance fossil fuel expansion inconsistent with the pathways laid out by the NZE, should be held accountable by investors for their contributions to the systemic risk of climate change.

    Key data sources:

 

Summary Table

Target setting

1.1

Net zero by 2050 commitment for financed emissions

1.2

Robust interim targets that reduce the absolute impact of financed emissions
 

1.3

Interim targets aligned with limiting warming to 1.5°C

Fossil fuel exclusion policies

2.1

Robust near-term exclusion policies for fossil fuel-intensive projects and companies, to include: a) Arctic and tar sands oil and gas, coal mining and power production, and b) commitment in line with the NZE to eliminate financing for the expansion of fossil fuel production and consumption 

Fossil fuel financing

3.1

A record of demonstrating commitment by actually reducing fossil fuel financing since the Paris Agreement
 

Changes From Prior Years

In the 2021 and 2022 editions of this proxy voting guide, banks were assessed on their efforts to measure and disclose financed emissions (scope 3, category 15 financed emissions). This assessment metric has since been replaced by actual fossil fuel financing data.