Net Zero Banking Alliance abandons its 1.5C global temperature target

ISTANBUL

The Net Zero Banking Alliance, a group of leading global banks, decided Tuesday to scrap a requirement for its members to align their lending, investment and capital markets activities with a target of keeping global warming to 1.5C, shifting instead toward a broader “well-below 2C” alignment under the Paris Agreement.

The UN-backed coalition of over 120 banks released a report which is the third version of the guidance that establish a pathway for banks to set climate targets in line with the agreement.

“Targets should align with the goals of the Paris Agreement, aiming to limit global warming to well below 2°C, striving for 1.5°C,” it said, lowering the more “ambitious” target for the member institutions.

“Limiting global temperature increases to well-below 2°C, striving for 1.5°C, will require ambitious actions from all strands of the economy,” said the guidance in the summary.

The banks cited coordination challenges, sluggish policy progress and fiduciary risks as reasons for the shift.

Noting that “financial institutions will need to adjust their business models,” it called for developing “realistic strategies underpinned by robust, science-based targets and action plans.”

“The window for action is small. The consensus of climate scientists is that global warming must be limited to 1.5°C above the preindustrial average by the end of the century to avoid the worst impacts of climate change. To achieve this and the goals of the Paris Agreement, emissions must reduce by almost 50% by 2030 and policymakers at COP28 called on parties to “transition away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science,” it said.

“The role of the banking industry in tackling this challenge is key. While banks alone cannot solve the climate crisis, they can act as part of the broader ecosystem to support the reduction of greenhouse gas (GHG) emissions by engaging with and providing financial solutions, wherever possible, to their clients and partners as they seek to transition to a low-carbon economy,” it added.

Following the adjustment, Netherlands-based Triodos Bank announced on its website that it is leaving the alliance “due to the recent vote by a majority of member banks for lowering the climate ambition of the alliance and setting less strict requirements.”