In a significant move towards addressing climate change, members of the Net Zero Banking Alliance (NZBA), a part of the broader Glasgow Financial Alliance for Net Zero, have voted to apply emissions reduction goals to their capital markets businesses.
This decision marks a crucial step forward in aligning banking practices with global climate targets.
Until now, many of the 140 members of the NZBA had pledged to eliminate their financed emissions, focusing primarily on loans and investments. However, the absence of accounting for emissions from debt and equity underwriting meant that a substantial portion of banks’ carbon footprint went unaddressed.
Recognizing the substantial impact of capital markets services on greenhouse gas emissions, the NZBA has introduced new guidelines aimed at documenting emissions attributable to banks’ capital markets activities. This includes arranging and underwriting services provided to clients in issuing new debt and equity instruments.
The updated guidelines reflect the evolving practices, methodologies, and data availability in the past three years and are in line with standards provided by the Partnership for Carbon Accounting Financials. These guidelines encourage banks to disclose a significant portion of greenhouse gas emissions associated with their capital markets businesses.
The announcement by the NZBA has not been without controversy, drawing criticism from some quarters. West Virginia State Treasurer Riley Moore has called on banks to withdraw from the alliance, arguing that the guidelines violate their fiduciary duty to clients and shareholders.
Despite the opposition, the NZBA has emphasized the importance of collective action in addressing the climate crisis. The alliance acknowledges that while banks cannot tackle the issue alone, they play a crucial role in supporting government-led climate strategies and helping clients reduce emissions in the real economy.
Under the new standards, NZBA member banks will set targets aligned with the most ambitious temperature goals of the Paris Agreement, with a focus on limiting global warming to 1.5°C above pre-industrial levels.
Banks will begin applying the new guidelines to their decarbonization targets from April 22, 2024, with a deadline of November 1, 2025, for the inclusion of capital markets targets where feasible.
As banks worldwide commit to reducing their carbon footprint, the NZBA’s efforts signal a significant shift towards sustainable finance and climate-conscious practices within the banking sector.
