The EU’s European Central Bank recently released a paper “An Examination of Net-Zero Commitments by the World’s Largest Banks.” The paper examined net zero pledges and targets from Global Systemically Important Banks (G-SIBs) and discovered that while 25 out of 30 G-SIBs have made Net-Zero commitments, there is still area for improvement when it comes to G-SIBs climate practices. While the study focused on banks, the findings are indicative of a greater credibility issue in net zero commitments of all kinds.
The paper identifies types of net zero activities and some current issues with current G-SIB practices in the chart below:
Additionally, the misleading nature of these practices can give rise to greenwashing and litigation risk. The paper explains:
“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. Furthermore, these issues can arise from inadequate or malfunctioning internal governance and risk management of net-zero commitments, which, as outlined in the ECB’s guide on climate-related and environmental risks, fall within the mandate of prudential supervisors. As such, we find that it is of a paramount importance to further improve public disclosures”
Net zero commitments in finance are complex and greenwashing in the financial sector is an increasing concern among regulators around the world. The majority of G-SIBs are members of the Net-Zero Banking Alliance (NZBA), but despite their cooperation on climate, the EU report makes it clear that practices need to evolve. In many cases companies set vague net-zero targets, leaving details to be figured out later. But as we approach 2030, a major milestone for many targets, the time has come for serious action. Consistency and follow through for net zero commitments is no longer optional as legal and compliance risks emerge for companies that leave their net zero targets on the backburner.
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