Yesterday Lawrence blogged about how NGO’s are calling bank climate plans into question because the industry appears to show no signs of moving away from fossil fuels funding. Last month, we blogged about a study from the European Central Bank (ECB). The study claimed that Banks who were members of the Net-Zero Banking Alliance (NZBA) did not have substantially different practices than the banking industry at large. Now new research from the National Bureau of Economic Research appears to support that position. In the new study, researchers looked at administrative credit registry data from Europe to draw their conclusions. The study states:
“First, we reject the divestment hypothesis. Net zero banks do not divest from polluting sectors, nor do they scale up project financing for renewable power projects. Second, we reject the engagement hypothesis. Borrowing firms dependent on net zero banks are not likelier to set their own climate targets, nor do they reduce their verified emissions. We conclude that net zero commitments do not lead to meaningful changes in bank behavior.”
This may leave you wondering, if they aren’t changing their practices – why do banks join NZBA in the first place? The study opines that the answer may lie in ESG ratings as banks that join NZBA often see a bump in their ESG rating after joining. This makes a certain sense after joining NZBA banks are required to set net-zero emissions targets within 18 months and firms with targets are likely to receive better ESG ratings than firms without. However, as ESG matures, folks are looking beyond simply climate targets and more to behaviors employed to achieve them. When promises have been made but minimal work has been done, it raises questions of greenwashing.
To give the NZBA the benefit of the doubt, climate programs do have long lead times and it’s possible that the full effects of NZBA policies are not yet being felt. At the same time, honesty and integrity surrounding climate commitments are paramount and if progress isn’t being made then that’s a good sign that strategies need to be reconsidered. The current upheaval that net zero groups in the financial sector (asset management and insurance) are experiencing within themselves isn’t helping things either.
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