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Aligns with articles 1, 2, and 6 in the Terra Carta mandate

Net-Zero Pathways for Banks

How big banks are helping guide the whole banking industry towards net-zero.

By Bladonmore, HSBC, and Bank of America

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The Tipping Point

Keeping the planet’s atmosphere below the Paris Agreement’s target temperature means a 50% reduction in global carbon emissions each decade. This requires a collaborative response on a global and industrial scale.

The monumental scale of the climate challenge is not something that can be addressed by one company or nation on its own, it takes the collective efforts of individuals, companies of all sizes and the public sector to bring about the changes required. The global transition to net-zero carbon emissions will require nothing less than a new commercial and industrial revolution. Such a transition will also require the significant investment of many trillions of dollars in new sustainable funding in the coming decades.

Huge changes must be made to every sector of the economy, and every layer of society, from national governments and large businesses right down to the individual citizen. A key intersection point for all of these players is the global banking industry. This case study looks at how leading banks have stepped up to the challenge of spearheading change, and finding new ways to finance the transition across the whole banking industry.

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Facilitating Change

Banks have made a historic pledge to reach net-zero carbon emissions across their lending portfolios by 2050, but it isn’t good enough for banks to simply reallocate capital away from today’s high emitters, it is increasingly important that banks actively support their clients to deliver on their net-zero commitments. Working with their clients across every industry who have set net-zero goals, banks are helping to direct capital towards low-carbon activities.

Beyond being responsible for their own emissions, banks are poised to act as climate partners for individuals, corporations, and governments, providing and channelling the finance needed to invest in sustainable business models.

The Financial Services Task Force (FSTF), launched by the Sustainable Markets Initiative (SMI), has focused on the need to build a bridge between the macro-level methods scientists and governments use to assess the climate change crisis, and the day-to-day processes used by banks.

Noel Quinn, Group Chief Executive of HSBC, Chairs the FSTF and its members are committed to mobilising finance and working with customers to support their transition. In April 2021, the FSTF and the UN co-launched the Net-Zero Banking Alliance with 43 founding banks, by the end of 2021, 98 banks have joined the alliance. Together they have responsibility for 43% of global banking assets amounting to US$66 trillion.

What the Terra Carta has done is try to bring together the public and private sector to find financing solutions to fund that change to the industrial landscape.

NOEL QUINN, GROUP CHIEF EXECUTIVE, HSBC

Finding Common Ground

In recent years many banks have made net-zero commitments and acknowledged the pivotal role they have to play in helping their clients make the transition. The FSTF has encouraged leading banks who have specialist ESG resources and teams to take the lead to help the whole industry make the transition, specifically they are increasing clarity on how banks build their net-zero strategies and create robust methods to help external stakeholders to keep track of their progress.

The scale of the task demands sharing and collaboration across an ecosystem of natural competitors to find common ground on what net-zero means for banks in practice. The necessary timescales, and continued evolution, of net-zero thinking also demands unprecedented transparency and disclosure. Brian Moynihan, CEO, Bank of America and Co-Chair of the SMI, cites the Terra Carta as a North Star, saying, "It brought us all together with a common set of principles," and helps banks ask the critical question, "Are we making the progress the way society needs?". Case studies that showcase our collective efforts, encourage action, create conversations and demonstrate progress towards a sustainable future.

There is a lack of consistent, granular, and accurate emissions data from the economy on which to base decision-making, making the job of measuring and reporting more complex, but there is no time to waste so the Financial Services Task Force (FTSF) is taking the lead.

Guiding an Industry

In October 2021, the FSTF launched the Net-Zero Practitioner’s Guide to help the banking industry adopt a consistent and transparent approach to supporting clients’ transition to net-zero. It combines the knowledge and collective experience of eleven banks and builds upon the Net-Zero Banking Alliance (NZBA) Commitment Statement.

The guide aims to help banks of all sizes to develop a robust approach for measuring and setting targets for emissions within their portfolios which will help them advise their clients with their own sustainability activities. The guide provides candid insight to leading banks’ decision-making processes around their net-zero commitments and focuses on forward-looking recommendations to reduce emissions related to bank financing and investment.

The guide is a first step in a huge effort towards net-zero, but it does not purport to be a best practice guide, or a library of all available tools, instead it encourages a consistent and transparent approach to reducing emissions through nine core principles, and makes recommendations for implementation.  It is intended to be a living document that reflects the most up-to-date views of the industry on the transition.

The first part of the guide helps banks navigate key choices they will face as they develop robust strategies, alongside an overview of the potential trade-offs involved, and insight into the decision-making processes, highlighting areas for potential common ground across the industry. The second section explores how banks can engage with clients and policymakers to deliver financing to help accelerate the transition to a low carbon economy and disclose progress transparently for stakeholders.

Once in place these net-zero strategies must then translate into material progress towards closing the transition finance gap, and active collaboration with clients and policymakers to enable a net-zero real economy.

Noel Quinn, Group Chief Executive of HSBC, and Chair of the FSTF made it clear this is just the beginning of the journey, “The real test will be the provision of money, the provision of finance, to projects, to businesses that want to retool themselves for the new world that is net-zero compatible. And that's where we'll be judged, we know that, but we're very much up for that challenge.”

Download the Practitioners' Guide to Net-Zero Banking

Underlying principles of financial services task force banks

  1. We are committed to supporting our clients in their net-zero transition journeys.

  2. We commit to help achieve the greenhouse gas (GHG) reductions required to meet the Paris targets in both our bank operations and financing activities.

  3. We will look to ground our actions in scientific pathways and the best available economic and technological knowledge of what it will take for the real economy to transition to net-zero.

  4. Where there are multiple, credible scientific pathways or multiple standards, we will aim for convergence where it aids comparability and use our judgements, and will clearly disclose the rationale for those judgements.

  5. We will seek to disclose with transparency, allowing stakeholders to understand and compare the impact of our activities.

  6. We recognise that this is a rapidly evolving space and that we may need to revisit our choices in time; however, this will not prevent us from acting now.

Learn more about SMI's Financial Services Task Force here

This case study was prepared by Bladonmore in partnership with HSBC and Bank of America and aligns with articles 1, 2, and 6 in the Terra Carta mandate.