Climate non-profits have welcomed the addition of emissions related to banks’ capital market activities that were included for the first time in updated climate target-setting guidelines for members of the Net-Zero Banking Alliance. But they say the new guidelines lack ambition and fall short of what is needed.
The updated guidelines were published recently following a review by NZBA member banks, which started in early 2023.
Non-profits have long argued for the inclusion of facilitated emissions from banks’ bond and equity underwriting activities, as these off balance sheet items can provide a “hidden pipeline” of financing for fossil fuels.
NZBA member banks already set emission-reduction targets for financed emissions from direct lending they provide to companies in carbon-intensive sectors such as oil, gas and power. But capital markets arranging and underwriting services are the largest source of greenhouse gas emissions for some banks.
Eric Usher, head of the UN Environment Programme Finance Initiative, which convenes the NZBA, a sector-specific alliance for banks under the Glasgow Financial Alliance for Net Zero, said the important addition of facilitated emissions ensures that current and future NZBA members will continue to set targets in line with the most ambitious temperature goals of the Paris Agreement and the latest science.
Two steps forward, one step back
“Finally requiring its member banks to set 2030 targets for the emissions from their underwriting and other capital markets activities is a positive step forward for the NZBA. But overall the new guidelines are a missed opportunity to lay out what is required for banks to align their financing with 1.5C,” said Patrick McCully, a senior analyst at French non-profit Reclaim Finance. “They fail to require robust methodologies that would help ensure that banks set ambitious and comparable targets,” he added.
Under the new guidelines, banks can report their financed and facilitated emissions separately, or combine them into a single target. For transparency, banks may be encouraged to report them separately. But McCully said there is an element of “two steps forward, one back” in requiring facilitated emissions targets, but then allowing them to be “blended into lending targets”.
“This is an attempt to blend apples and oranges. As banks have long maintained, these are different types of finance; and the emissions are calculated using different methodologies.”
Non-profit BankTrack said banks are likely to “under-report” their climate impacts as their facilitated emissions will probably be calculated using the Partnership for Carbon Accounting Financials’ facilitated emissions standard, which only requires banks to account for 33 per cent of their emissions linked to their capital market business, instead of the 100 per cent that many non-profits have called for.
Under PCAF, banks can optionally disclose 100 per cent of their facilitated emissions, but this has to be reported separately and banks’ rationale for doing so must be clearly disclosed.
By November 2025, according to the NZBA’s new guidelines, all climate targets should have been reviewed to include capital markets, where significant and where data and methodologies allow. But the coexistence of targets following the original guidelines, together with the upcoming November 2025 targets, risks creating “more confusion and less comparability” between member banks’ targets, BankTrack warned.
The NZBA said the updated guidelines aim to raise standards across the global banking industry while respecting the different legal and regulatory environments in which NZBA members operate. In a statement, it said the overarching ambition and key principles of the original guidelines are maintained, with banks still committing to reaching net zero by 2050 or sooner, and setting intermediate 2030 sectoral targets “in line with the latest science”.
Major discrepancies
But critics say the non-binding nature of the guidelines means major discrepancies among targets set by member banks will continue to persist.
In a joint statement responding to the NZBA’s new climate-setting guidelines, Amalgamated Bank, Ecology Building Society and Triodos Bank, who are members of the Global Alliance for Banking on Values as well as the NZBA, said that encouraging disclosure of policies for the highest emitting sectors, rather than requiring it, undermines the transparency and action needed for better climate outcomes.
“The reality is that we are not on track to stay within safe levels of warming and more needs to be done,” the statement said.
With four US banks recently leaving the Equator Principles, Reclaim Finance said there are concerns that some of the large US banks lobbied against stronger guidelines. It claims that some NZBA members wanted to go further than the published guidelines. But instead, it said the alliance took the decision to insist on the individual and independent nature of target setting by its members, granting more freedom to members.
Reclaim Finance is now urging banks — both within and outside of the alliance — to “show more ambition” than that required by the NZBA guidelines.
UNEP FI would not comment specifically on the concerns raised by non-profits. But it is believed more than 140 NZBA member banks were invited to be involved in the review process and to share their views about what an updated version of the guidelines might look like, based on their experience applying them, setting and implementing climate targets and financing transitions in different sectors.
For the new guidelines to be adopted more than 50 per cent of NZBA members had to vote, and two-thirds of votes cast had to be in favour, with votes comfortably clearing both thresholds, the NZBA said.
