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UK-based activist investor non-profit ShareAction found the 25
largest European banks have not committed to absolute emissions
reductions in their net-zero plans and do not have clear plans to
cut their financing of fossil fuels, including coal.
A September report by the group singled out
some of the banks as net-zero leaders, but found that, overall, few
banks pledging net-zero emissions had promised to take "concrete
steps" such as interim targets for emissions in projects they
finance, absolute emissions reduction targets, or absolute
emissions disclosures.
Only five of the net-zero-committed banks had an interim target
for emissions reductions prior to reaching net zero by or before
2050. Such targets serve to hold the banks to account and ensure
final targets can realistically be reached.
What is more, all but three of the 25 largest European banks'
net-zero plans avoid pledging absolute emissions reductions in
their portfolios.
The group wants the banks to upgrade their net-zero pledges
prior to the 26th UN Climate Change Conference of the Parties
(COP26) in Glasgow this November.
On the back of shareholder activists piling pressure on majors
Chevron and ExxonMobil in the US, the
nonprofit may replicate the movement in Europe, which could see
investors pressure banks to set interim targets for the emissions
of projects they finance and make obtaining finance for fossil fuel
projects more difficult.
Investor pressures like these are likely to continue. "Financial
firms like those targeted by ShareAction have been taking a leading
role in identifying and pricing climate change risk, but along with
that leading role comes increased attention on their tactics for
managing it," IHS Markit Climate & Cleantech Executive Director
Peter Gardett said.
Governments are poised to require banks to disclose their
climate risks, a move likely to spur greater investor pressures.
The UK is currently planning to require disclosure of
climate risks by financial institutions and large companies
under rules set to come into full effect by 2025. New Zealand
introduced similar rules in April. The governor of the Bank of
France has suggested EU states' central banks should be
required to make disclosures.
New rules could also accelerate divestments by institutional
investors. "As climate risk reporting requirements come into place,
pressure will intensify on institutional investors to be sure
financial portfolios are net zero in reality as well as in
ambition. We're only at the beginning of this process, and
financial firms should be prepared to face ongoing campaigns
targeting their shareholders and stakeholders," Gardett said.
Plans to cut financing for fossil fuels
critiqued
Despite a 9% decrease in fossil fuel financing overall amid the
drop in demand during the pandemic in 2020, large banks in China
and the EU nonetheless increased their financing for fossil fuels,
according to a report by Rainforest Action
Network (RAN).
Last year, capital market underwriting was the most common
source of fossil fuel financing from banks, with 65% of bank
financing for fossil fuels through the underwriting of bond and
equity issuances, RAN found.
However, of the European banks assessed, only UK-based Barclays
is targeting cuts to this portion of its activity.
While 20 of the 25 banks evaluated had a net-zero target
covering the emissions of the projects they finance, ShareAction
questioned whether adequate plans have been drawn up for meeting
those targets.
The majority, or 18 of the banks in the ShareAction report,
disclosed their high-carbon investments across various sectors, but
fewer than half (11) revealed the extent of their fossil fuel
financing specifically.
The non-profit noted that 15 of the banks now disclose data on
their portfolios' alignment with their own net-zero aims, which it
called "progress."
Three of the banks with net-zero targets—the UK's Lloyds
Banking Group and NatWest Group, plus Finland's Nordea—have
committed to halving financed emissions by 2030.
While not setting interim goals for emissions overall, eight
banks have interim sectoral targets for fossil fuel extraction and
power generation, but only three of them—Barclays and NatWest,
and France's Crédit Agricole—use an absolute emissions metric
or similar.
No European bank has yet pledged to completely stop financing
new fossil fuel expansion, despite the International Energy Agency's
recommendation that fossil fuel financing must end to stop
global warming at 1.5 degrees Celsius above pre-industrial levels,
one of the aims of the Paris Agreement.
Few limits on fracking
Italian public bank Intesa SanPaolo stands out as the only bank
in the study that had committed to phasing out its exposure to all
unconventional oil and natural gas sources, such as oil sands and
fracking, ShareAction said.
No European bank currently limits how much they finance
pre-existing unconventional projects, the non-profit warned.
Most banks restrict activity in one or more unconventional oil
and gas activity, but the lack of thresholds for unconventional oil
and gas overall meant the limits did not incentivize oil majors to
phase out such projects, it added.
For example, Denmark's Danske Bank excludes project financing
for the expansion of oil and gas exploration, as well as
production, and NatWest's oil and gas policy excludes dedicated
financing for companies exploring new oil and gas reserves.
Italian bank UniCredit does not offer new asset-level finance
for some unconventional oil and gas activities and restricts
corporate finance for companies with a revenue share of 25% or more
from unconventional oil and gas sources.
However, even this threshold for financing was too low for
ShareAction because producers like Russia's Gazprom and Austria's
OMV don't meet it, allowing the bank to become Europe's "largest
financier of Arctic oil and gas activities" since 2016.
Many banks place limits on financing of coal projects, but these
are also inadequate, said ShareAction.
For example, 12 of the banks committed to stopping financing
activities relating to the thermal coal sector by 2030, and seven
put limits on financing coal mining, the non-profit said.
But the pledges were not good enough for the non-profit. "Less
than half of the banks have committed to a phase-out of financing
to thermal coal-related activities and most of these policies are
ridden with loopholes," said ShareAction.
Two French co-operative banks stand out for cutting back the
most on coal investment, it said. Crédit Agricole has put in place
coal policies ShareAction called "ambitious" and Crédit Mutuel was
found to be the only bank which has both relative and absolute
limits on investment in the coal power and mining sectors.
Posted 13 September 2021 by Cristina Brooks, Senior Journalist, Climate and Sustainability