Net Zero Finance Analysis

The World Resources Institute (WRI) has launched a tracker to evaluate banks’ net-zero pledges, aiming to address the accountability gaps in banks’ climate commitments.

The Financial Institutions Net Zero Tracker provides a standardised method for evaluating climate pledges, enabling comparison across institutions, explains the accompanying technical note.

“By comparing net zero targets and commitments in their granular details, the tool showcases what constitutes strong or weak commitments as well as leading practices”, states the note.

This enables financial institutions to benchmark their pledges and identify leading practices, whilst empowering key stakeholders such as regulators and civil society to hold individual firms accountable, the document states.

The framework presents metrics and indicators for scrutinising the strength of banks’ commitments across four key dimensions:

• transparency and ambition – setting externally validated and absolute emissions reduction targets. These targets should align with 1.5°C scenarios, encompass scope 1, 2 and 3 emissions across high-emitting sectors, cover both on- and off-balance sheet activities, and include near-term interim goals with transparent methodologies
• implementation – integration of net-zero principles into investment decisions and reporting transparency. This includes granular assessments of the extent of sustainable and fossil fuel financing, shareholder voting patterns, fossil fuel exclusion policies, and active climate engagement with high-emitting clients
• credibility – taking concrete actions to align governance frameworks with climate goals. Credibility indicators include independent verification of targets, senior leadership oversight, executive compensation schemes linked to climate goals, and excluding carbon credits from portfolio emissions reduction targets
• consideration of nature and equity issues – adopting the TNFD framework, as well incorporating just transition principles and commitments to end deforestation into sustainability commitments

The tracker relies primarily on company reports and other publicly available disclosures for data. Where possible, data was normalised and standardised to allow for greater comparability. However, the WRI note acknowledges that the designers faced challenges in comparing self-reported data which often resulted in a divergence in definitions and methodologies used.

When it came to defining green capital allocation, the researchers used the International Energy Agency’s definition to ensure consistency and avoid inflated figures. They also took measures to avoid double counting green finance commitments.

When assessing fossil fuel allocation, some self-reporting by banks was deemed insufficient, so the researchers supplemented these disclosures with data from the Banking on Climate Chaos report by nonprofit group Rainforest Action Network. This allowed for a more comprehensive view of fossil fuel financing activities.

The initial report analysed 25 banks across 10 countries, including many global systemically important banks such as JPMorgan Chase, HSBC, and China’s Industrial and Commercial Bank, as well as smaller banks which have emerged as climate leaders such as La Banque Postale.

Future plans to improve the platform include expanding coverage to asset managers and asset owners, adding indicators on targets by asset class, and incorporating more indicators on deforestation, nature loss and just transition factors.