IIGCC and TPI Centre launch Net Zero Standard for Banks and Net Zero Banking Assessment Framework

The Institutional Investors Group on Climate Change (IIGCC), in consultation with the Transition Pathway Initiative Global Climate Transition Centre (TPI Centre), has today launched a Net Zero Standard for Banks setting out investor expectations on the transition to net zero. 

 

The Standard is built around the 10 areas of: bank commitments; targets; exposure and emissions disclosure; emissions performance; decarbonisation strategy; climate solutions; policy engagement (lobbying); climate governance; just transition; and annual reporting and accounting disclosures, and complements the Net Zero Investment Framework (NZIF).

 

The Standard is intended to support constructive engagement with banks to aid ongoing implementation of climate commitments. Where necessary, it will continue to evolve and be refined to reflect relevant developments, including new methodologies, policy and regulation.   

  

Alongside the Standard, the TPI Centre has launched a Net Zero Banking Assessment Framework, which is a set of measurable indicators, sub-indicators, and scoring guidance for assessing the alignment of  banks against the goals of the Paris Agreement. The Framework was produced by the TPI Centre in consultation with IIGCC and Ceres. 

 

The TPI Centre will use the Net Zero Banking Assessment Framework to assess 26 global banks across Europe, North America and Asia annually, with the inaugural assessments due for publication in summer 2023. As well as highlighting areas for improvement, the assessments will capture the progress many banks have made to date and the ongoing implementation of their stated climate-related policies and plans.    

 

The final Standard and Net Zero Banking Assessment Framework follows multiple rounds of investor consultation and a pilot study conducted in 2022. The pilot study found that while banks have stepped up in committing to net zero, disclosure on implementation of those commitments is less consistent. It is the same banks for which the TPI Centre will publish the inaugural assessments later this year.1

 

As publicly available resources, the Standard and Net Zero Banking Assessment Framework may be used by all investors to support engagement with banks on the transition to net zero. Through its Net Zero Banks Working Group, IIGCC will support investor engagement with a focus list of 20 banks in Europe, Canada and Asia. 

 

IIGCC’s Net Zero Banks Working Group includes more than 25 investors. Investor input into the Standard was supported by Natasha Landell-Mills (Sarasin & Partners LLP) and the Stewardship Team at EOS at Federated Hermes Limited (UK), including Bruce Duguid and Howard Risby. 

 

Carla Jouavel, Deputy Director at TPI Global Climate Transition Centre: “Aligning investments with the aim of limiting global temperature rise to 1.5˚C above pre-industrial levels remains critical for the banking sector. The TPI Centre’s Net Zero Banking Assessment Framework provides a robust tool for assessing banks’ preparedness in transitioning to net zero, and how well their financing activities align with the goals of the 2015 Paris Agreement. This Framework will inform investor engagement with the banking sector, helping to progress the transition to a low-carbon economy.” 

 

“We are pleased to be publishing the Net Zero Banking Assessment Framework alongside IIGCC’s Net Zero Standard for Banks.”

 

Stephanie Pfeifer, CEO, IIGCC, said: “Due to the nature of their activities, banks have an outsized role to play in whether the global economy successfully decarbonises or not. For investors with net zero commitments, many of which will include investments in banks, it will therefore be vital to engage with banks over their transition plans in order to fulfil their own commitments.” 

 

“I am delighted that IIGCC has today published the Net Zero Standard for Banks alongside TPI Centre’s Net Zero Banking Assessment Framework. As a result, investors will be better placed to assess how prepared banks are for the transition and to shape their engagement strategies accordingly.” 

 

 

Over [25] investors, including Amundi, Legal & General Investment Management, Nest Corporation, Schroders and Fidelity International have contributed to the development of the Standard.

 

Natasha Landell-Mills, Head of Stewardship, Sarasin & Partners said: “Bank financing greases the wheels of economic activity. They deploy capital towards businesses and economic activities that will deliver goods and services that people depend on in the future. For this reason, banks have a uniquely important role to play in support of global decarbonisation. Put simply, if banks continue to finance carbon-intensive activities that are misaligned with a 1.5˚C temperature outcome, the world will have little hope in achieving its climate goals.” 

 

“While the need to align financing with a net zero future is now well understood within most bank boardrooms, action to change financing decisions has been too timid. This is why shareholders in banks need to step up and make clear their expectations that banks align all their financing – whether it’s lending, project finance or capital markets activities – with the goals of the Paris Agreement. This is not just right for the planet, it is necessary to underpin banks’ long-term capital strength. With the release of the Net Zero Banking Standard, investors now have a coherent framework for supporting banks in delivering on this ambition, and banks have a clear articulation of investor expectations.”

 

Bruce Duguid, Head of Stewardship, EOS at Federated Hermes Limited (UK), said: “These guidelines will help the more than 100 banks already committed to net-zero goals to best seize the significant opportunities presented by financing the energy transition, while navigating key risks. We look forward to engaging with banks to identify how best to apply the guidelines to their unique circumstances and opportunities.”

Carol Storey, Climate Engagement Lead, Schroders, said: "We've seen greater momentum on climate change from the banking sector over the last year, with many banks now developing interim targets to support their net zero commitments. The new net zero standard and assessment framework will help investors identify good practice and encourage the banks in which they invest to develop a robust response to climate-related financial risks."

Charlotta Dawidowski Sydstrand, Head of ESG, AP7, said: "Banks have a critical role to play in the net zero transition. Clear reporting on net zero actions and goals is essential to combat greenwashing and to ensure that efforts are correctly focused on achieving real-world emission reductions. The Net Zero Standard for Banks and supporting Framework will help investors evaluate the credibility of banks’ transition plans.”

Adam Matthews, Chief Responsible Investment Officer, Church of England Pensions Board, said: “This public framework, underpinned by independent academic analysis, will provide investors with an accountability framework for banks. It will address greenwashing and test the seriousness of banks commitments and their actions.”

 

Grégoire Haenni, Chief Investment Officer, CPEG, said: “Asset owners understand the need to develop a coherent net zero engagement strategy with clear milestones and objectives to support companies transition towards a low-carbon economy. In this context, we support IIGCC's Net Zero Standard for Banks and the aligning Assessment Framework. Specifically, it will help take engagement activity to the next level, as it allows for a constructive dialogue that support banks in their transition to net zero emissions.”

 

Caroline le Meaux, Global Head of ESG Research, Engagement and Voting, Amundi, said: “Banks are key in the global economy and have therefore a role to play in the energy transition alongside public authorities and their clients. As a responsible investor, Amundi is pleased to have taken part in the development of the Net Zero Standard for Banks and the supporting Net Zero Banking Assessment Framework; we are confident that these will help global investors evaluate and further drive individual banks’ progress on alignment with the Paris Agreement.”

 

Jenn-Hui Tan, Global Head of Stewardship and Sustainable Investing, Fidelity International, said: “The IIGCC Standard provides a comprehensive tool for investors to be able to assess the credibility of banks’ climate strategies, guiding effective engagement to address areas where banks fail to meet investor expectations to align to net zero and support a just transition. As allocators of capital, banks have a pivotal role to play in the transition to a more sustainable economy. Banks can help support key sectors, by providing them with the significant capital they need to adapt their business models and develop green technologies.”

 

Ashish Ray, Head of Stewardship, Jupiter Asset Management, said: “Banks play a key role in maintaining the financial health of the global economy and therefore have an important role in tackling climate risk. As investors, we are deeply committed to promote the transition towards a low carbon economy, and therefore, consider it important to have an industry recognised approach outlining investor expectations to measure and monitor the net zero readiness of banks. We also understand the immense complexities and challenge(s) that lie before banks, so we are keen to support and better understand real world challenges. Therefore, Jupiter are pleased to have participated in the development of the new Net Zero Standard and Banking Assessment Framework and believe this will help investors like us to shape improved stewardship outcomes.”

 

Karoline Herms, Senior Global ESG Manager at Legal and General Investment Management (LGIM) said: “We recognise that there is heightened scrutiny on the banking sector at this time.  Irrespective of this we continue to consider that decarbonisation of the banking sector is key to ensuring that the goals of the Paris Agreement are met. We very much welcome the publication of a standardised, sector-wide assessment framework, and look forward to utilising its findings within our engagements.”

 

Alice Bordini Staden, Stewardship Lead at National Trust: "Banks sit at the core of the economic system and are notoriously difficult to decarbonise, given their exposure to a variety of sectors and economic interests. Banks (and insurers) are the enablers of the transition, and their ability and willingness to gradually re-direct financing from high carbon intensive industries to the low carbon economy is what will make net zero possible. Having a science-based banking assessment framework is of great help in guiding investor engagement and giving banks and policy makers visibility on investors expectations. It also helps investors compare progress across banks. We were pleased to take part in the development of the framework and will use it for all our banking engagement activities".       

Katharina Lindmeier, Senior Responsible Investment Manager, Nest, said: “The banking sector has a huge role to play in supporting the transition to net zero, and at Nest we’re already engaging with banks across our portfolio, focusing on their fossil fuel financing activities and net zero commitments. We welcome the release of the Net Zero Standard for Banks which will help investors like us be confident our engagement and stewardship is meaningfully supporting the transition to Net Zero.”

 

Cecilia Fryklöf, Head of Active Ownership at Nordea Asset Management said: “Nordea Asset Management welcomes the Net Zero Standard for Banks and Net Zero Banking Assessment Framework. The financial industry plays a key role in financing the global transition to low carbon economy, and it is therefore important that banks are setting climate commitments and transitioning their financing activities over time to net zero. This framework will further support our climate engagements with the banking sector.”

 

Peter van der Werf, Senior Engagement Manager of Engagement, Robeco, said: “Robeco is pleased to have supported the development of the Net Zero Standard for Banks and Banking Assessment Framework. We are now better equipped to monitor and evaluate the progress of global financial institutions in their journey to a net zero carbon economy, which supports us in our ongoing engagement and voting activities on climate.”

 

Dagfin Norum, Chief Investment Officer at Storebrand Asset Management said: : “The Net Zero Standard for Banks and the Net Zero Banking Assessment Framework are key tools for fulfilling the Paris Agreement's goal of making financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. They will guide investor efforts to assess banks' progress on climate and deforestation, and to engage constructively to improve climate transition strategies."