A coalition of banks last week committed themselves to achieving net zero greenhouse gas emissions by 2050 and adopting interim targets much sooner. But a glaring absence of banks from major polluting countries in the Asia Pacific and criticism of its conservative ambitions has undermined confidence in the alliance.
The Net Zero Banking Alliance (NZBA) was launched on April 21 by the United Nations Environment Program’s Finance Initiative and comprises 43 banks from 23 countries.
Hailed by former Bank of England governor and UN climate envoy Mark Carney as “the breakthrough in mainstreaming climate finance the world needs”, the initiative joins a flurry of investor-led forums ahead of the UN Climate Change Conference (COP26) in Scotland in November. A Net Zero Insurance Alliance is also in the offing.
The NZBA requires banks to apply a set of guidelines to lending and investment customers which aim to align emissions they finance to a goal of keeping global warming under 1.5 degrees celsius and achieving net zero emissions by 2050. An interim target by 2030 or sooner is also needed.
The alliance’s members include titans of trade and commodities financing such as Bank of America, Citi, Deutsche Bank, HSBC and Standard Chartered. But the initiative has attracted little interest from major Asia Pacific lenders from top finance markets such as China, India, Japan, Singapore and Australia.
There are just three Asian signatories to the alliance: South Korea’s Shinhan and KB Financial and Bangladesh’s IDLC Finance.
Just six members of the NZBA rank among the top 19 trade finance providers in Asia, according to August 2020 rankings by research firm East & Partners. All are European or US institutions.
“I found it telling that given its level of ambition, not even one Australian, Japanese or Chinese bank could sign up to it,” says Jack Bertolous, research coordinator at Market Forces, a group that campaigns to end fossil fuel funding.
“I hope the reason is because they have imminent plans to make much stronger commitments than what’s contained in the Net Zero Banking Alliance,” Bertolous tells GTR. He argues a net zero by 2050 target is already “out of date”, citing Swiss-Canadian research which argues the global carbon budget – the emissions that can be released while still meeting a reduction target – will be used up by 2040.
Many Asia Pacific financial institutions and governments have already made commitments to curb financing that contributes to global warming, with announcements piling up as COP26 draws closer.
Some banks in the region have already gone further than the alliance’s commitments. The guidelines do not explicitly suggest stopping or even easing back on financing for fossil fuels, but some Asian lenders – like their counterparts elsewhere in the world – have already retreated from the sector.
On April 26, Japan’s MUFG said it will no longer finance expansion of existing coal-fired power projects, with some exceptions, an extension of an existing policy not to fund any new coal power plants. No Coal Japan, an alliance of campaign groups, welcomed the move but said MUFG’s overall approach falls well short of the country’s 2050 net zero target.
It called on major banks Mizuho and Sumitomo Mitsui Financial Group to set climate goals in line with the target.
None of Australia’s big four banks joined the pledge but three of them have committed to exiting thermal coal financing over the next nine years. The National Australia Bank has said it “expects” to exit coal financing at around the same time.
China is aiming to reach carbon neutrality by 2060, but this hasn’t translated into firm goals for its giant banks, which command vast loan books.
Citi, a major player in Asia Pacific trade finance and an NZBA member, revealed this week it had walked away from 11 “transaction opportunities” involving thermal coal plants or mining because they clashed with its updated policy on not financing new thermal coal projects.
In a report published on April 29, the Asian Development Bank called on governments in the region, home to around 60% of the world’s population, to use “fiscal measures, legislation, and regulation to accelerate the growth of green and social finance”. It encouraged regulations that create common standards for disclosing and measuring green finance.
More guidelines than actual rules
The NZBA, while welcomed by the likes of US climate envoy John Kerry and UK Prime Minister Boris Johnson, was met with a chillier reception by campaigners who have long been pushing for faster action by banks.
Jeanne Martin, a senior campaigner with campaign group ShareAction, says it was disappointing that the alliance has given each bank up to four years to formulate goals and publish how they intend to achieve them.
“It’s an incredible time frame for something that should have been done years ago,” Martin writes in a statement on the organisation’s website, adding that the framework is more relaxed than what some of the alliance’s members are already doing. She also criticises the decision not to include banks’ underwriting activities in the goals.
Advocacy group Bank on our Future branded the NZBA “sadly a wasted opportunity that does nothing to bring big banks closer to ending fossil fuel funding” and criticised the absence of commitments on climate change contributors like deforestation.
Separately, a global survey of banks has found that most banks are still not analysing, let alone reporting, how their loan portfolios are potentially contributing to climate change.
Most banks that assess their impact on emissions are still more focused on pollution generated by their own operations – such as office energy consumption or business travel – rather than their financing, according to an April 28 report by CDP Capital Markets, a climate NGO focused on disclosure.
Of the Asia Pacific banks approached for comment, two replied. Australia’s ANZ says it was not approached to join the NZBA, but is “always open to considering new initiatives aimed at reducing global emissions”. The alliance’s targets “broadly mirror the bank’s existing commitments,” a spokesperson adds.
Its competitor NAB did not directly address whether the bank had been approached to become a member, but is “the only Australian bank that has signed the United Nations Environment Programme Finance Initiative’s Collective Commitment to Climate Action, working towards aligning business operations and lending portfolios to achieve net zero carbon emissions by 2050”.
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