Global banks set to include capital market emissions in net zero targets

More than 100 banks globally are set to include capital market emissions in their updated net zero targets following a review of the Net Zero Banking Alliance’s (NZBA) guidelines.

The second version of NZBA’s guidelines for target setting were published this week ahead of the alliance’s third anniversary, and reflect improvements in financed emissions calculation methodologies and data quality.

NZBA members include the likes of Barclays, BNP Paribas, Citi, Deutsche Bank, UBS and Westpac: all of them will now, for the first time, have to include emissions resulting from their capital market activities into their next round of climate targets (by November 2025), or explain why they did not include them.

Earlier this year, HSBC (also an NZBA member) became one of the first banks to disclose “facilitated emissions” following the development of an assessment tool by the Partnership for Carbon Accounting Financials (PCAF), which gives a 33% weighting to emissions that result from debt and equity capital markets and syndicated loans.

The bank also included these emissions in its decarbonisation targets for oil and gas, power and utilities.

“This bank-led update to the guidelines, and its important addition of facilitated emissions from capital market activities, ensures that current and future NZBA member banks will continue to set targets in line with the most ambitious temperature goals of the Paris Agreement and the latest science,” said Eric Usher, Head of the UN Environment Programme Finance Initiative (UNEP FI). 

Transition planning requirements

Within a year of including capital markets emissions in new net zero targets, banks that are members of the alliance will also have to disclose “a high-level transition plan”, including planned actions and milestones to meet targets. These may include investment and lending guidelines, and climate-related sectoral policies, such as for fossil fuel and other high-emitting sectors. 

To support their own transition planning exercise, banks are also encouraged to disclose how they will evaluate their clients’ transition plans, the guidelines add.

HSBC published its first climate transition plan this year, laying out in 100 pages how it plans to provide US$750 billion to US$1 trillion in sustainable finance and investment by 2030 and become a net zero bank by 2050. 

Meanwhile, Barclays, one of the world’s top financiers of fossil fuel projects, announced in February that it would no longer provide project finance or any other direct financing for oil and gas expansion projects or related infrastructure projects.

Banks ‘stepping up their commitments to climate’

The new guidelines were welcomed by sustainability professionals across sectors. Ivan Frishberg, Chief Sustainability Officer of Amalgamated Bank and a member of the NZBA steering group, said: “The updated guidelines are a significant step forward, most notably because banks will have to start setting targets for Capital Markets work that underpins a significant amount of finance flows to high emitting sectors. The guidelines also start to introduce disclosures on approaches to transition finance and to engagement in the real economy policy that is central to decarbonisation.”

The Net Zero Banking Alliance faced a tricky process in updating the guidelines, as financial institutions have recently left climate groups when rules were strengthened or for fear of political backlash in the US. 

In this context, David Carlin, the Head of Risk of the United Nations Environment Programme Finance Initiative (UNEP FI), offered his “huge congrats” to “leaders within these banks for stepping up their commitments to climate”.