Some of the largest global banks overplay their net-zero commitments which could lead to greenwashing accusations and increase litigation risk, an analysis published by the European Central Bank (ECB) has found.
Although 25 out of the 30 large global banks reviewed by the researchers have made public commitments towards net zero, many did not share enough information, had aspirational language, or made commitments that were unclear such as achieving carbon neutrality. It also found that green financing targets are not clear among banks.
For example, the researchers found that banks will report their exposure to high-emitting sectors but do not cover exposure on the rest of their balance sheet, making it difficult to assess their net-zero commitments. And while there are exclusion policies, it is unclear how these policies contribute to banks’ net-zero alignment.
The researchers also found a discrepancy in targets and vagueness in how the methodologies were described, but noted these could be due to data gaps.
“It is very complex to assess sustainable finance targets in the absence of a common taxonomy of sustainable activities or a clear and internationally accepted definition of transition finance,” the paper says.
This lack of clarity could lead to litigation and reputation risk, along with accusations of greenwashing. The shortcomings could also be a result of risk management. As central banks and regulators have started to crack down on greenwashing, these findings could have broader supervisory and regulatory consequences as well.
“Incomplete or simply poor net-zero commitments could result in litigation and reputation risk in view of recent legal cases, and as such they need to be designed with care and based on facts,” the paper states.
The researchers suggest that a common minimum framework is needed to improve reliability among global banks, pointing to current frameworks in the EU such as the corporate sustainability reporting directive which could be leveraged on an international level.
They also recommend integrating a transition planning framework into the risk management process of banks to “help them understand the impact of their strategic actions and risk management tools to achieve net-zero goals, thereby allowing better disclosures”.
This page was last updated December 12, 2023
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