Guidelines for Climate Target Setting
The Net Zero Banking Alliance (NZBA) releases new guidelines for climate target setting, aiming to strengthen the banking industry’s climate commitment and help to achieve the 2050 net zero goal.
The Net Zero Banking Alliance has nearly 150 signatories, and its assets under management have reached US$75 trillion, accounting for 40% of the total assets of global banks. Signatories already provide net-zero financing to carbon-intensive industries such as power, energy, and real estate.
Related Post: Glasgow Financial Alliance for Net Zero Releases 2023 Annual Progress Report
Update to New Guidelines for Climate Target Setting
The new guidelines are based on the first version released by NZBA in 2021, reflecting the new trend of net-zero development in the banking industry in the past three years. The new guidelines maintain the same overall goals and key principles, with signatories committing to achieving net-zero emissions by 2050 or before and setting science-based carbon reduction targets for 2030.
For the first time, the guidelines expand the scope of the net zero target to banks’ capital market activities. NZBA believes that the underwriting services provided by banks to clients when issuing stocks and bonds may increase greenhouse gas emissions and therefore need to be included in the calculation. The new guide also updates net-zero methods and data from the past three years.
Key Principles of New Guidelines for Climate Target Setting
The new guidelines are based on the following key principles:
- Ambition: Limit global warming to 1.5 degrees Celsius by the end of this century and achieve the 2050 net zero target based on science-based methods.
- Scope: Provide a carbon emission measurement framework for signatories in lending, investment, and capital market businesses, including Scope 1, Scope 2, and Scope 3 GHG, and continue to increase as data quality and customer disclosure are improved.
- Targets: Signatories need to set net zero targets for 2030 and 2050, and set new mid-term targets every five years, which should include planned actions.
- Coverage: Signatories are required to disclose information that has a significant impact on industry emissions and financial performance to the extent permitted by data and methods. This information should comply with regulatory disclosure requirements.
- Governance: The goals set by the signatories need to be adopted by the bank’s top management.
- Implementation: Signatories are required to set climate goals within 18 months of joining the NZBA and disclose progress annually. All targets set after April this year need to comply with the requirements of the new guidelines.
Contents of New Guidelines for Climate Target Setting
The new guidelines are mainly divided into four parts, namely:
- Guideline 1: Banks need to independently set and publicly disclose long-term and medium-term climate targets to achieve net zero by 2050. Banks are required to provide Scope 1, Scope 2 and Scope 3 carbon emission data, and provide the methods, benchmarks, scenario information used in the disclosure, and disclose transition plans within one year after the release of the target to support emission reductions in carbon-intensive industries. NZBA encourages banks to seek third-party audits to verify the data when publishing performance reports.
- Guideline 2: Banks need to establish carbon emissions baselines and measure and report carbon emissions from lending, investment, and capital markets activities annually. Carbon emissions data includes absolute emissions and carbon intensity and provides measurement methods and reliable data sources. When using proxy variables, banks need to use the highest quality data for calculations.
- Guideline 3: Banks need to adopt science-based carbon reduction options to set long-term and medium-term targets consistent with the 2050 net zero target. NZBA recommends using scenarios provided by the United Nations Intergovernmental Panel on Climate Change (IPCC) or scenarios provided by the International Energy Agency (IEA), and disclosing the key assumptions used.
- Guideline 4: Banks need to review climate targets regularly. Banks are required to review the objectives at least every five years and revise them where necessary to demonstrate changes in material factors. The updated goals are approved by top management and monitored as part of the bank’s organizational strategic plan.
Reference:
Net-Zero Banking Alliance Members Vote to Reinforce Guidelines for Climate Target Setting
