20 December 2021
On 13 December, the senior leaders of the Net-Zero Banking Alliance’s Steering Group convened for the Alliance’s first annual Principals Meeting, wherein they reviewed the progress of the last year and made plans for 2022.
The Net-Zero Banking Alliance (NZBA) has grown rapidly since its inception in April 2021: it now encompasses 95 member banks, from 39 countries, which collectively represent US$ 66 trillion in assets – over 43% of banking assets worldwide. These member banks are firmly committed to executing a net-zero transition in the global banking sector. While members’ net-zero teams are deeply engaged in the work of the Alliance under the leadership of its Steering Group, the annual Principals Meeting is intended to engage senior leadership on strategic issues that provide direction to the Alliance. Coordinated engagement will be critical to achieving a net-zero transition – as the NZBA Steering Group chair Tracey McDermott of Standard Chartered noted in her opening remarks, “no one wins unless we all win”.
As an industry-led and UN-convened platform, the NZBA reflects a level of ambition that is consistent with the predictions of the best-available science. This ambition is captured in the core tenets of the NZBA Commitment to which all members agree:
- to achieve net-zero emissions by 2050;
- in alignment with the Paris Agreement’s 1.5 degrees centigrade temperature limit;
- via a scientific model that aims for no- to low-overshoot of that temperature limit.
But as the NZBA moves past its infancy, there are several key focus areas – both within the Alliance and in the broader economy – that must be addressed to support the fulfilment of this commitment.
The first focus area is the construction of a strong net-zero architecture that includes clear implementation guidelines within the Alliance, as well as consistent measurement and disclosure standards in the broader financial ecosystem. UN Special Envoy Mark Carney advised that the maturation of net-zero architecture and the creation of more granular financing plans for high-emitting sectors should be a priority across the GFANZ alliances: “The NZBA will be instrumental in building out that architecture and implementation, and I believe will generate best practices for GFANZ as a whole.”
Clear disclosure standards are a second focus area for the Alliance in 2022. The need for consistent and harmonized disclosure in the finance industry was echoed by Alliance principals, as well as the need for comparability. In the absence of any official disclosure guidance from financial regulators, some Principals urged the use of ‘de facto’ standards such as TCFD, the forthcoming ISSB, PCAF and UNEP FI’s Guide for Climate Target Setting as the scaffolding to help structure their reporting. “By [adhering to these standards] voluntarily, it’s good for all of us,” said another principal, “at some point, something will be mandated, so we should be proactive.”
Banks are a vital part of enabling the decarbonisation of the global economy, and the Alliance provides a leadership community of banks that have committed to catalysing the decarbonisation of entire industries and sectors – from energy and agriculture to transport and real estate – in a transparent, credible, consistent, and science-based manner. But the Alliance cannot accomplish this on its own. Therefore, engagement with policymakers, on a regional and international level, is the third critical focus area to achieving a net-zero transition. By working in partnership with its sister alliances in GFANZ, the NZBA plans to clearly present its needs to policymakers. “From my vantage point… I think it makes sense that we…act together to communicate that we need policy makers to lead on decarbonization in the real economy, and if they do, we will support them,” remarked one principal. However, this demands that banks, and particularly senior leadership, take on a greater climate advocacy role than they may have in the past: as one principal noted, “it will require cultural change and leadership from the top to deliver on our policy support commitment.”
In addition to support from policymakers, the Alliance principals also noted that greater geographic representation in the membership is the fourth focus area that should be pressed for in 2022. “We do have to recognize that although we have seen a big increase in our membership, it’s not yet fully representative of the entire globe,” remarked one CEO. As the Alliance continues to grow, it is important to ensure that all perspectives are represented at its table, said one principal: “If we are going to achieve a just transition we do need to make sure that the voices of emerging markets and developing countries are heard, and that we’re able to support banks wherever they are located, that perhaps don’t have some of the [same] capacity and resources as other members.”
Lastly, principals recognized that mobilizing capital flows to emerging markets and developing countries (EMDCs) is a fifth focus area. “Current capital mobilization and clean energy investment falls short of what’s needed to put EMDCs on a path to reach net zero emissions by midcentury,” acknowledged a principal. To address this, principals urged a focus on de-risking “climate-friendly investments”, creation of public-private partnerships, and shoring up knowledge gaps. Ambitious action is needed to ensure the net-zero goal is in reach for all: “Carbon pricing alone will not mobilize enough capital to reach and remain on the 1.5 pathway,” said one principal, “and the role of pricing negative externalities is just the first phase. Beyond that, we must pursue solutions to these multifactorial problems – we cannot rely on technological or consumer changes alone, we have to make it happen…we have to write the rules of the game.”
Next year, the Alliance anticipates the publication of its first annual progress report: a major milestone, as it will outline the first set of interim 2030 targets from Alliance signatories. The Alliance also plans to start releasing reports from its sector and implementation work tracks, which will provide more granular guidance on how banks should approach sectoral decarbonization, monitoring, and reporting. It will also start planning for the incorporation of capital markets and underwriting activities into the targeting and reporting scope of the NZBA Commitment. These deliverables, along with continued advocacy and policy engagement, will provide greater transparency on how banks are targeting the goal of net-zero emissions by 2050.
As the Alliance approaches its first anniversary in April, there is much progress to celebrate. But Alliance members are already looking forward to COP27, eager to achieve milestones before the next climate summit. “We’ve got a really good work plan, and there’s been an enormous amount of work done to date,” concluded one member, “but there’s even more work to be done as we go into 2022.”
This article was anonymized under Chatham house rules.
For more information about the Net-Zero Banking Alliance, click here.