Net-Zero Basics

Why banks are critical to reaching global climate goals

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Banks and other financial institutions play a pivotal role in supplying companies and entrepreneurs with capital they need to create and scale clean energy. Banks’ own stakeholders are assessing the alignment of their bank and its business with key temperature targets.

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The alignment of lending with the goal of a net-zero economy gives banks outsized importance in achieving it. Banks’ so-called financed emissions are an average of 700 times larger than their direct emissions.

“Reducing banks’ own operational emissions is important, but focusing on their financed emissions, which are typically significantly greater, has the potential to contribute to much greater climate impact,” writes the Sustainable Markets Initiative’s Financial Services Taskforce in a recently published practitioner’s guide for banks in setting a net-zero strategy.

The guide sets out nine focus areas designed to help banks align emissions across their portfolios with the goal of keeping global temperature rise below 1.5°C. The areas, which range from defining the scope of emissions to measuring portfolio alignment and engaging with customers, are designed to help reach net-zero in the real economy.

Climate-related focus areas for banks

A transition plan published by the Climate Safe Lending Network, which comprises banks, academics and investors, notes that banks increasingly will be judged on their climate strategies.  Key areas of focus include setting a net-zero target using principles established by the Net Zero Banking Alliance, employing scenario analysis that reflects a net-zero-aligned world, stopping flows of finance to fossil fuels and deforestation and investing directly in net-zero technologies and startups.

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A Practitioner’s Guide for Banks. Guidance designed to help banks move from their net-zero commitments to implementation, published by the Sustainable Markets Initiatives’ Financial Services Taskforce (October 2021).

The Good Transition Plan. Climate action strategy development guidance for banks and lending institutions published by the Climate Safe Lending Network and the Center for Sustainability Solutions (October 2021).

The Greenhouse Gas Protocol, Category 15: Investments. Information to aid categorization and measurement of financed (Scope 3) emissions.

Net-Zero Banking Alliance. A U.N.-convened group of more banks representing more than 40% of global banking assets that are committed to aligning their lending and investment portfolios with net-zero emissions by 2050.