Demand accompanies IIGCC-convened initiative to enhance global banks’ disclosure, governance and business alignment with 2050 net-zero goals.
Asset owners and managers with US$11 trillion AUM have launched an engagement initiative aimed at improving the banking sector’s commitment to achieving net-zero greenhouse gas (GHG) emissions from their portfolios by 2050.
A report published today by the group – convened by the Institutional Investors Group on Climate Change – said there is a need for a “clear commitment that banks are shifting their strategies to align” with net-zero targets.
“Dramatic shifts in bank finance are required to achieve the Paris goals and avoid the looming systemic risk of a ‘carbon crunch’ hitting their balance sheets,” said Bruce Duguid, Head of Stewardship, EOS at Federated Hermes, the stewardship arm of the asset manager, which co-authored the report with the Church Commissioners for England.
“As banks increasingly commit to net-zero by 2050, this must be matched by targets and actions to achieve absolute greenhouse gas emissions reductions of 45% over the next decade in their portfolios. This will require increasing finance to low carbon and transitioning companies and withdrawing it from those that cannot or will not aligned to 1.5-degrees,” he added.
The investors – which include 35 of the IIGCC’s 300+ membership – not only call on banks to “steadily eliminate” the financing of fossil fuel businesses, but also to withdraw from other sectors and activities not consistent with a net-zero 2050 commitment, including those that cause emissions through deforestation and land-use change.
They also warn banks not to rely on “unproven negative emissions technologies” or avoided emissions arising from green finance activities as offsets.
Fulfilment of detailed targets to scale up green finance and reduce exposures to non-aligned businesses should be reinforced by variable remuneration frameworks, the report said.
The group has already opened engagement with 27 of the world’s largest banks – with more expected to be added – and has invited them to co-develop a bespoke Paris alignment assessment benchmark for the sector.
“The investor expectations provide clear guidance to banks as to the steps investors want to see them take to improve their contribution to a net-zero economy and the engagement-focused approach will allow for the best ideas to be tabled,” said Bess Joffe, Head of Responsible Investment at the Church Commissioners for England.
Other institutions supporting the initiative include AP2, Aviva Investors, Fidelity International, LGIM, M&G, Robeco, RPMI Railpen and Storebrand.