Home Business Banks made big climate promises. A new study doubts whether they work.

Banks made big climate promises. A new study doubts whether they work.

by SuperiorInvest

Two and a half years ago, bankers and investors attended the United Nations climate summit in Glasgow, an annual event normally dominated by activists and policymakers. It was considered a milestone as the financial sector agreed to put all its power into tackling climate change.

Hundreds of banks, insurers and asset managers pledged to invest $130 trillion in capital to reduce carbon emissions and finance the energy transition as they launched the Glasgow Finance Alliance for Net Zero. But a recent study, published by the European Central Bank, questions the effectiveness of those promises.

“Our results cast doubt on the effectiveness of voluntary climate commitments in reducing emissions financed, whether through divestment or commitment,” wrote economists at the central bank, the Massachusetts Institute of Technology and Columbia Business School who analyzed the loans. granted by European banks that had signed agreements. to Net-Zero Banking Alliance, the banking group of the Glasgow initiative.

Researchers found that since 2018 banks had reduced lending by 20 percent to sectors they had targeted in their climate goals, such as oil, gas and transportation. That sounds like progress, but researchers argued it wasn't enough because the decline was the same for banks that hadn't made the same commitment.

“It's not okay for the net-zero bank to act exactly like the non-net-zero bank, because we need that to increase financing,” said Parinitha Sastry, an assistant professor of finance at Columbia Business School and one of the researchers on the paper. authors. “We want there to be a change in behavior.”

The expectations of policymakers and climate activists for banks are high. Trillions of dollars need to be invested in clean energy each year for the world to reach net-zero carbon emissions by 2050, according to the International Energy Agency. Most of that cost will need to be financed privately, and banks are key facilitators in those deals.

Many banks clamored to make net-zero emissions pledges around the Glasgow summit, known as COP26. But as pressure to reduce emissions grows, climate activists are concerned about banks' declining commitments due to growing political pressure, demand for cheap energy and shifting geopolitical alliances.

The researchers used data from the European Central Bank on loans from more than 300 European banks. Of them, about 10 percent had joined the Net-Zero Banking Alliance. They used to be larger and lend more to high-carbon sectors like mining, particularly outside the eurozone.

The economists found that the alliance banks did not change interest rates on loans to companies with high emissions and that companies that received the loans were no more likely to set decarbonization goals. In fact, all banks acted the same regardless of the methods available to reduce emissions, including divesting from large emitters, increasing investment in green activities and collaborating with companies to reduce their own emissions, the company said. Mrs. Sastry.

“It's hard to really say, from this evidence, that net zero commitments are driving changes in banks' behavior,” he said.

The Net-Zero Banking Alliance, which is backed by the United Nations, is among the strictest voluntary climate groups that banks can join. Members have committed to setting emissions targets for 2030, with interim targets for 2050, as well as promises to publish their emissions data annually.

Responding to the report, the alliance said it was too early to judge its effectiveness. Members have only just begun to submit transition plans and other progress reports, Sarah Kemmitt, head of the alliance's secretariat, said in a statement.

“We believe it is premature to draw conclusions about whether the commitments that NZBA member banks choose to make have resulted in reductions in their financed emissions,” he said.

The banking group and similar financial coalitions have been facing a number of challenges, especially amid the growing backlash against green and other socially responsible initiatives in the United States. The Net-Zero Banking Alliance has been accused of diluting commitments to appease Wall Street banks, its largest members. The insurer alliance lost about half its members last year, and Climate Action 100+, an investor group, saw prominent members leave this year.

But for some, the groups are not strict enough.

GLS, a German bank, withdrew as a founding member of the Net-Zero Banking Alliance last year after a report by European nonprofit groups said the alliance's largest banks had funneled $270 billion into fossil fuel expansions since they joined.

“What's the point of being in an alliance like that?” said Antje Tönnis, spokesperson for GLS. “Plus, it's a lot of work. The complaint implies something, but it has no consequences.”

Another founding member, Triodos Bank in the Netherlands, said it hoped to strengthen commitments.

The alliance's “updated guidelines are not strict enough and give banks too much freedom,” Jacco Minnaar, the bank's chief commercial officer, said in a statement. But he acknowledged that they had improved. “We are convinced that we will have the greatest impact within this global commitment,” he said.

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