As the global framework and gold standard for sustainable banking, the Principles for Responsible Banking continuously evolve in line with increasing ambition and new goals humanity defines – such as the new Global Agreement on Biodiversity. At the last Principles for Responsible Banking Board Meeting in 2022, signatories made the important decision to strengthen the definition of the Principles’ climate ambition to specify that signatory banks, in accordance with the Paris Agreement, are expected to align their portfolios with a 1.5 degrees pathway. For banks operating in developed countries, this includes achieving net-zero emissions by at least 2050.
What is the expectation for climate mitigation targets under the Principles for Responsible Banking?
As per Principle 1, all signatories should align their portfolios with the goals of the Paris Climate Agreement that the global community has agreed on: “to limit global warming to well below 2, striving for 1.5 degrees Celsius, compared to pre-industrial levels”. Since the Principles were launched in 2019, global climate ambitions have increased and the goal of limiting global warming to well below 2°C is no longer considered sufficient. Thus, the strengthened climate ambition of the Principles for Responsible Banking now specifies that all signatory banks that have a significant impact on GHG emissions must align their portfolio with a pathway towards 1.5 degrees warming.
For signatories in developed countries this includes achieving net-zero GHG emissions by at least 2050. Meanwhile, banks in developing countries should also aim at aligning with the 1.5 degrees ambition of the Paris Agreement, but for them this does not necessarily imply having to achieve net-zero GHG emissions by 2050.
UNEP FI has produced a suite of supporting documents for banks at different maturity levels to support target setting, such as the Foundations of Climate Mitigation Target Setting or the Guidelines for Climate Target Setting for Banks.
How does the climate ambition of the Principles for Responsible Banking and the Net-Zero Banking Alliance differ from one another?
The Principles for Responsible Banking is the overarching global framework for sustainable banking, and the Net-Zero Banking Alliance (NZBA) is the climate-focused element and the climate accelerator of the Principles. In both cases, banks commit to setting targets to mitigate their impact on climate change, aligning with the goals of the Paris Climate Agreement.
All NZBA members, both from developed and developing countries, must align with net-zero by at least 2050. Principles for Responsible Banking signatories in developed countries with climate mitigation as an impact area are now expected to do the same.
The difference with regards to climate mitigation lies in the timeline banks commit to setting targets: 18 and 36 months for NZBA members and 4 years for Principles for Responsible Banking signatories. NZBA members also commit to using the Guidelines for Climate Target Setting for Banks, while Principles for Responsible Banking members are highly encouraged to do so.
Why is there a different expectation for Principles for Responsible Banking signatories in developed and developing countries?
All countries should protect the climate system for the benefit of present and future generations of humankind, on the basis of equity and in accordance with their common but differentiated responsibilities and respective capabilities. Accordingly, the developed countries should take the lead in combating climate change and the adverse effects thereof. Setting climate mitigation targets in line with a 1.5 degrees pathway has proven to be challenging for banks from many developing countries because of a lack of data, scenarios and national goals for GHG emission reductions. Therefore, the expectations for banks in developing countries affected by these challenges allow for more flexibility, including in their timeline for reaching net-zero emissions.
About the Principles for Responsible Banking
With over 300 signatory banks representing almost half of the global banking industry, the Principles for Responsible Banking are the world’s foremost sustainable banking framework. Through the Principles, banks take action to align their core strategy, decision-making, lending and investment with the UN Sustainable Development Goals, and international agreements such as the Paris Climate Agreement. The Principles for Responsible Banking include the Net-Zero Banking Alliance, which is the climate-focused initiative of this global framework.