Surge in fossil fuels challenges banks’ path to net zero
For investors who are trying to understand how well banks are sticking to their promises to reach net-zero emissions, changes in climate predictions caused by evolving situations could make it even harder to figure out what’s going on.
Many big banks in Europe and North America are following a similar plan to achieve net-zero emissions.
First, they commit to eliminating emissions from their financed activities by 2050. Then, they figure out which parts of their loans contribute the most to carbon emissions and set goals to cut them by 2030. Finally, they set targets for different sectors to reduce emissions across their entire portfolio.
A fourth step could involve changing those goals as the journey to net zero evolves. Predictions that show coal and oil use might go up unexpectedly in the next few years are the main reason for these changes.
Celine Herweijer, HSBC’s chief sustainability officer, said, “We can’t stay in the 2021 view of the world.”
“We can’t choose a pathway that is several years out of date and just stick to it. We will need to keep looking at how the net zero-aligned scenarios are evolving,” Herweijer added.
HSBC based its interim targets on the International Energy Agency’s plan to achieve net zero emissions by 2050.
“Banks should ensure that their targets and disclosures remain consistent with the best available science, but it’s critical that they transparently communicate on any adjustments,” said Xavier Lerin, senior research manager at ShareAction, a UK-based nonprofit known for pushing climate-change resolutions at banks, including HSBC and Barclays Plc.
“Failing that, banks could be seen as cherry-picking methodologies or making misleading claims about their net-zero alignment.”
More generally, some people worry that the climate predictions used by finance companies don’t match current climate science. They think these predictions underestimate the risks posed by increasing temperatures.
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