The Net Zero Banking Alliance‘s (NZBA) recent decision to revise its guidelines from a strict 1.5°C target to a more flexible ‘well below 2°C’ target represents a ‘loosening of climate ambitions’, analysts at ABN Amro have commented.
Georgette Boele, senior economist, sustainability research, and Larissa Fritz, senior fixed income strategist (credit), were commenting following the NZBA’s 15 April publication of a new Guidance for Climate Target Setting for Banks.
Within this document, the Alliance reiterated the role of the banking industry in tackling the climate challenge, stating that targets should ‘align with the goals of the Paris Agreement, aiming to limit global
warming to well below 2°C, striving for 1.5°C’.
A myriad of banks have already withdrawn from the NZBA, including JP Morgan, Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs, to name but a few.
Broaden the scope
As Boele and Fritz suggest, these new targets potentially broaden the scope of the NZBA, enabling banks from higher-emission countries such as China and India to join the alliance.
However, it also ‘raises the question whether the relaxed targets will attract new banks from high-emission countries or simply bring in banks from existing jurisdictions with less ambitious climate goals,’ they note. ‘The more relaxed target has also implications for the economy, as higher temperature rises result in aggravated physical risks, leading to more losses for banks.’
‘Increased flexibility’
As the NZBA puts it, the new target ‘increases flexibility for banks with exposures to a range of markets and sectors to manage targets and transition across their balance sheet’, with the previous 1.5°C seen as too restrictive.
As the ABN Amro analysts suggest, while the new ‘well below 2°C’ target ‘might be acknowledging the current reality, there are still severe implications from higher temperature rises. The new pathway significantly increases physical risks, which in turn also result in higher losses for banks. Clearly, the new NZBA standard points to a loosening of climate ambitions.’ Read more here and here.
