A Practitioner’s Guide to net zero for banks

The global transition to net zero will require nothing less than a new commercial and industrial revolution. Huge changes have to be made to every sector of the economy – power generation, manufacturing, transport, housing and agriculture, to name just a few. We need to complete this transition by 2050 at the very latest if we are to avoid severe climate change. As set out by the Intergovernmental Panel on Climate Change, unless we keep the global average temperature rise to well below 2°C, preferably below 1.5°C, the world may face unpredictable and severe damage to natural habitats, economic growth, and social cohesion. The scale of the challenge is such that rapid action is needed now.

Such transition will require significant investment – many trillions of dollars of new sustainable funding in the coming decades. That’s where banks have an important role to play. Beyond being responsible for emissions related to their own operational footprint, banks can act as climate partners to individuals, corporations and governments, providing and channelling the finance needed to invest in sustainable business models.

Many banks have made net zero commitments in recent years, acknowledging their role in the climate transition. But what does this mean in practical terms? Going forward, banks will face opportunities and challenges in aligning their portfolios with pathways to net zero. Due to the diverse nature of their business, different teams in different geographies will have the opportunity to solve unique problems and support a variety of client needs. Each bank's journey will depend on the sectors it finances, as these sectors will reduce emissions at different speeds and to varying degrees, given technology constraints.

What is needed now is clarity for banks on how to build their net zero strategies, demonstrating that they have a robust approach and enabling external stakeholders to keep track of progress. Net zero commitments may not be credible unless there is common ground on what the term means for banks in practice, and how to get there.

The Sustainable Markets Initiative’s Financial Services Taskforce has come together to publish this forward-looking guide based on the emerging experiences of the member banks. It is designed for a wide audience, from executives to those actually building the nuts and bolts of a bank’s net zero strategy.

The first part of the guide walks through the steps needed to implement a net-zero strategy for financed emissions. It provides recommendations about the key choices banks will face as they develop robust strategies, alongside an overview of the potential trade-offs involved. This guide provides critical insight into the decision-making processes of some of the world’s largest banks, highlighting areas for potential common ground across the industry. The second section explores how banks can engage with clients and policymakers to deliver financing to help accelerate the transition to a low carbon economy, and disclose progress transparently for stakeholders. Ultimately, the guide looks to progress the industry dialogue on how banks can move from net zero ambition to implementation and action.