The NZBA’s 2023 Progress Update shows some member banks’ targets are not consistent with their commitments
Quentin Aubineau, Policy Analyst, Banks and Climate, BankTrack
Quentin Aubineau, Policy Analyst, Banks and Climate, BankTrack
Last week, Monday December 4th was Finance Day at COP28. To mark the occasion, the industry-led and UN-convened Net-Zero Banking Alliance (NZBA), a grouping of commercial banks committed to bring down their financed emissions to Net-Zero by 2050, published its 2023 Progress Update. This report provides “a stocktake of any new targets set by Alliance members” rather than an in-depth analysis of NZBA members’ progress on target-setting (unlike the NZBA’s Progress Report released in November 2022).
In this blog, BankTrack policy analyst Quentin Aubineau takes a look at what this Progress Update shows us about how the alliance is developing, some two and a half years since it was founded as the supposedly ambitious banking arm of the Glasgow Financial Alliance for Net Zero (GFANZ). He also explains how BankTrack’s NZBA Tracker helps shed more light on some of the issues revealed by the report.
The NZBA is growing, but the quality of members’ targets is uneven
The NZBA 2023 Progress Update highlights the growth of the Alliance to 136 banks, with 20 new members joining in the year to September 2023. Members are due to set their first round of targets within 18 months of joining the Alliance, and the report indicates that 96 banks have done so as of September 2023 (1). Another trend shown in the report is that among these 96 banks that have already set targets, 76% have set targets for the power generation sector and 57% for the oil and gas sector (compared to 71% and 51% in September 2022).
A welcome upward trend, but why are so many member banks still leaving these crucial sectors out? The International Energy Agency (IEA) indicates that in 2021, electricity and heat generation accounted for about 44% of global CO2 emissions from fossil fuel combustion (44% from coal, 32% from oil and 22% from natural gas). NZBA members have committed to prioritise their efforts where they can have the most significant impact “i.e. the most GHG-intensive and GHG-emitting sectors within their portfolios”. So it is surprising that 23 banks set targets that don’t include power generation and 41 set targets that don’t include oil and gas. To justify this, these banks should demonstrate that they have a low exposure to these sectors compared to other carbon-intensive sectors. Otherwise, they should urgently set comprehensive targets for these sectors.
Our newly-updated NZBA tracker gives more details of the targets set by 60 NZBA members for the coal, oil & gas, power generation and iron & steel sectors. The diversity of elements used by banks to set individual targets makes the comparison between NZBA members’ ambition difficult. Therefore, for each of these sectors, the tracker indicates key elements used by banks to set these targets, including which Net-Zero Scenario they use, what emission scopes their targets cover, as well as the types of target set, units used and baseline dates. This offers a more accurate picture of banks’ specific patterns in climate targets-setting, and provides useful insights into the extent of some of the problems flagged by the NZBA.
Key problems flagged by the NZBA
In spite of its superficial nature, this 2023 Progress Update provides a glimpse of the challenges identified by the NZBA that will be analized in-depth in next year's progress report.
Firstly, the NZBA emphasises the need for transparency regarding emissions covered by decarbonisation targets. The Alliance remarks that without concrete disclosure, a target that “only covers a fraction of” total financed emissions for a sector makes it “difficult to truly ascertain the ambition level of the targets” (2).
Secondly, the NZBA reminds us that its members should set targets consistent with the ambition to limit warming to the 1.5ºC Paris goal. However, the report states that “for various reasons, some members have based targets on scenarios targeting higher temperature outcomes, which are not consistent with the NZBA commitment”. This seems a polite way of stating that certain NZBA member banks have already abandoned the 1.5ºC Paris goal before even starting their efforts.
Lastly, the report makes clear that “disclosing both intensity-based and absolute emissions metrics is required by the Guidelines and important because it allows stakeholders to track a bank's progress over time and to compare its performance to other banks” (3).
Our NZBA tracker provides some more details about the extent of these problems. For instance, among the 60 banks assessed, 48 have set an emission-intensity target for the power generation sector, but no information is disclosed regarding absolute emissions of their power generation portfolio. In addition, the tracker shows that some targets for the power generation sector are not consistent with the NZBA commitment because they are based on banks’ own scenarios (Goldman Sachs Group) or because they follow IEA scenarios that are unlikely to limit warming to 1.5ºC (Banco Mercantil del Norte, Citi and four others banks). Such cases should be urgently addressed by the NZBA.
The implementation of the accountability mechanism is crucial for the credibility of the NZBA
To ensure banks follow its target-setting Guidelines (4), the NZBA states in its report that it “is already engaging with members that are having difficulties meeting the commitment” and that it will “soon publish more details on its accountability mechanism to support its implementation and promote transparency” (5). This accountability mechanism is also mentioned in the NZBA Governance document, which states: “a review of individual bank’s observance of the commitment and Guidelines will be performed by the Secretariat at key milestones based on public reporting” (6). Under the mechanism, the Secretariat will engage member banks if needed, and ultimately, if no progress is made, it could unilaterally remove the bank as Signatory.
Considering the shortcomings in members’ target setting that this report identifies, this accountability mechanism seems urgently needed, as it will be crucial to ensure the overall credibility of the NZBA.
Last but not least, the NZBA mentions the publication of the “PCAF methodology covering off-balance sheet capital market transactions”. This methodology was published on December 1st and will help NZBA members quantify their facilitated emissions, i.e. “the GHG emissions associated with their facilitation of capital markets activities” (7).
As of now, only seven out of the 60 banks assessed in our NZBA tracker have set decarbonisation targets that cover GHG emissions from both their lending and underwriting activities. Although the new PCAF methodology is far from being sufficient, NZBA members are no longer able to hide behind the lack of an existing methodology to avoid setting decarbonisation targets covering their facilitated emissions.
NZBA has not yet addressed its shortcomings
The 2023 Progress Update report confirms the concerns of BankTrack and other civil society organisations expressed during the NZBA’s launch in April 2021. While the NZBA boasts of growing its membership, it fails to face the many shortcomings of its members’ targets.
According to the NZBA, its next Progress Report will be published in Summer 2024. While this Progress Update promises that by then “an in-depth analysis of targets and progress towards net zero” will be provided (8), it has missed an opportunity to demonstrate credibility by already publicly engaging with members that have set targets that are inconsistent with the commitments they made as signatories.
We’ve already seen some absurd targets being launched by NZBA members, such as JPMorgan Chase’s recent Energy Mix target, which makes it easier for the bank to hide its continued finance for fossil fuel expansion. This passive attitude shown so far by the NZBA risks further weakening of targets, and is incompatible with the urgent need for banks to stop financing fossil fuel expansion and to concretely align their activities with a 1.5ºC scenario.
Find out more about NZBA members’ decarbonisation targets in BankTrack NZBA tracker here.
Notes to editor:
(1) 93 out of the 107 banks that were due to set targets by September 2023 have done so and three banks have set their targets early.
(2) NZBA, 2023 Progress Update, December 2023, p.12.
(3) Ibid. “Intensity-based emissions metrics measure emissions per unit of output, such as emissions per kilowatt-hour, or emissions per kilometre driven. Absolute emissions metrics measure total emissions, regardless of output.”
(4) NZBA, Guidelines for Climate Target Setting for Banks, April 2021; NZBA, Supporting notes for Guidelines for Climate Target Setting, August 2022.
(5) NZBA, 2023 Progress Update, December 2023, p.19.
(6) NZBA, Governance arrangements, August 2023.
(7) Partnership for Carbon Accounting Financials, The Global GHG Accounting and Reporting Standard Part B: Facilitated Emissions for the Financial Industry, December 2023.
(8) NZBA, 2023 Progress Update, December 2023, p.5.