At COP 26, 190-plus nations agreed to boost the rate of their greenhouse-gas emission cuts. At the same time, financial institutions committed to align US$130 trillion of private capital with the goals of the 2015 Paris Agreement by 2050. The Paris agreement calls for limiting global warming to 1.5 degrees Celsius over preindustrial levels.
One year later, where does the banking industry stand?
To find out, the International Banking Federation and Deloitte surveyed bank executives and directors from around the world. We also interviewed representatives of banks, banking associations, and an international organization. The results are reflected in this report.
Environmental, social, and climate-related issues are materially impacting all sectors of the economy. Real economy sectors are busy finding ways to decarbonize their business according to net-zero commitments and related transition plans. While governments, governmental agencies and carbon-emitting industries need to drive effective solutions to climate change, banks—as financial intermediaries and central players of any economy—play an important role in supporting the transition of their clients in different real economy sectors.
Indeed, in their transition strategies, banks must consider not only the transition of their own operations but, more importantly, the emissions of their financed activities as well. Financed emissions represent around 75% of the carbon footprint for banks and are extremely difficult to measure. Nevertheless, they are an opportunity for banks to play a pivotal role in reaching net-zero throughout the economy.
To fulfil their role as financial intermediaries who can support the transition to climate neutrality, banks are increasingly evaluating business opportunities, risks, and ways to support and accompany clients on the journey to climate neutrality. Along the way, they are reviewing their own operating and business models to ensure that climate-related matters are adequately addressed in their own operations, as well as in their financing activities and engagement with clients. Banks must pay close attention to how capital is redirected and to the risk of potentially stranded assets that have or will be suffering from unanticipated or premature write-downs, devaluation or conversion to liabilities. Considerations on stranded assets will play a significant role in the transition to climate neutrality of lending and investment portfolios.
The success of the transition depends on a collaborative, cross-sectoral, and cross-institutional approach to solutions that could benefit everyone.
Our research has led to seven key findings about the banking industry’s climate neutrality efforts.
In this report we take a closer look at each of these key findings. We hope you find interesting and useful as you consider how your company is looking to address these issues.