Net Zero Banking Assessment Framework (Transition Pathway Initiative, in consultation with the IIGCC and Ceres)

Anna Triponel

June 9, 2023
Our key takeaway: Banks have an impact on global temperature rise and the effectiveness of actions designed to mitigate climate change. While some of their emissions come from their own operations, most stems from the service they provide - financing corporations and entities to carry out their own activities; otherwise known as “financed emissions.” Even though banks are indirectly influencing real-world emissions, they are not absolved from the responsibility to tackle this issue. Rather, they are uniquely placed to influence companies and other entities to transition to a net zero future because they set the environmental and human rights standard of what is expected in order to borrow money and receive other financial assistance from banks. So what can banks do? A lot according to the Net Zero Banking Assessment Framework. Notably, banks are integral to a just transition which includes incorporating just transition principles into their climate strategy and decarbonisation efforts. 

Transition Pathway Initiative, in consultation with the IIGCC and Ceres, released Net Zero Banking Assessment Framework (June 2023), which serves as a benchmarking tool to compare the progress of banks in their net zero and just transitions:

  • “Banks have a unique climate impact”: The report states that financial institutions indirectly impact real-world emissions and efforts to tackle climate change as a result of their capital allocation. Therefore, they have a unique role to play in managing the net zero transition, particularly their potential to influence “corporate behaviour and climate outcomes.”
  • Financial institutions are integral to a just transition: The framework highlights just transition as one key indicator of evaluating banks’ performance in managing the low-carbon transition. Banks should consider whether they have integrated Just Transition principles in their climate strategy. More specifically, they can ask themselves the following questions: i) “Has the bank committed to decarbonise in line with defined Just Transition principles, recognising the social impacts of its decarbonisation efforts?”; and ii) “Has the bank disclosed actions taken to ensure relevant Just Transition considerations are incorporated in its climate strategy (e.g. Just Transition-related requirements in lending covenants and conditions, pre-investment screening, sector policies)?” It is clear that the questions are designed to ensure that banks are considering their impact on people in their efforts to mitigate climate change.
  • The framework covers nine other areas: The framework asks banks to consider their efforts to transition to net-zero and provides questions for guidance. For instance: 1) “Has the bank committed to achieving a net zero financed and facilitated emissions by 2050 or sooner, consistent with 1.5°C scenario?”; 2) “Has the bank set short-, medium- and long-term targets for reducing its financed and facilitated emissions, consistent with a 1.5°C pathway?”; 3) “Has the bank disclosed its exposure to high-emission sectors?” High-emission sectors include oil and gas, power, coal mining, airlines, shipping, auto manufacturing, steel, aluminium, diversified mining, paper, cement, food and real estate; 4) “Has the bank disclosed its annual progress against its emissions reduction targets?”; 5) “Has the bank set a target to increase its revenue derived from 1.5°C-aligned assets?"; 6) “Has the bank set and disclosed a strategy to scale up finance directed towards climate solutions?”; 7) “Has the bank disclosed a 1.5°C-aligned climate lobbying position, with governance and review measures to enforce this position?”; 8) “Has the bank nominated a Board member or Board Committee with explicit responsibility for oversight of climate change?”; and 9) “Has the bank incorporated material climate-related matters in its audited financial statements, and notes on this?"

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