By Dr. Adriana Kocornik-Mina, Research & Metrics Sr Manager, Global Alliance for Banking on Values (GABV)
Values-based banks walk the talk in their commitments to net zero and call on other signatories of the Net Zero Bank Alliance to stand behind their own decarbonisation goals and avoid greenwashing
Can we really afford companies warning that their ESG initiatives, including decarbonisation, are now a material risk? The answer is no. The world cannot afford any more feasible explanations for selective or partial climate action. Consider the record rise in CO2 emissions from global fossil fuel combustion in 2021. The International Energy Agency (IEA) defined a pathway for the global energy sector to reach net zero emissions by 2050. It requires the world to meet several milestones, including nearly 50% of electricity from low-emissions sources by 2025 and nearly 90% from renewables by 2050. Not one milestone refers to a rise of CO2 emissions, but here is where we are.
The implications for banks of the milestones on IEA’s pathway to reach net zero are significant. Bank financing for low-carbon energy supply must increase manyfold. The industry’s record is not encouraging, however. According to a recent studio by Bloomberg NEF, in 2021 the Energy Supply Banking Ratio of Global Systemically Important Banks (GSIB), that is, the ratio of bank financing to low carbon energy projects to bank financing to fossil fuels, was 0.81 to 1, and not that different from the 0.92 to 1 of 126 signatories of the Net Zero Banking Alliance (NZBA).
If the world cannot afford these warnings from companies, can it afford industry-led initiatives some signatories appear to use as what Dr Seuss children’s book called ‘The Waiting Place’, where companies wait for “the fish to bite […] the wind to fly a kite […] a pot to boil […] Another Chance […]?” Frontrunner values-based banks have been grappling with this question. They have been asking: what about credibility, integrity and transparency? What about actual progress?
Their response to these questions has been to not remain in Dr Seuss’ waiting place. Rather, they have opted to “hike far and face up [their] problems whatever they are” to affirm that we cannot tolerate that 56 financial institutions, who have formally committed to align their lending and investment portfolios with having net zero emissions by 2050, afterwards provide US$270 billion of loans for oil, gas and coal companies that are expanding their businesses.
Values-based banks, members of the Global Alliance for Banking on Values (GABV), have approached the developments in NZBA in two ways, revealing what we as a society must demand from all actors at times of crisis: accountability. GLS Bank opted to leave the NZBA. Their exit is a rebuke of duplicity and ‘not walking the talk’. The decision is coming from a very different place to Vanguard’s, a US$7 trillion asset manager who, in December 2022, withdrew from the Net Zero Asset Managers Initiative “to provide the clarity [their] investors desire […]”. The other four values-based signatories – Amalgamated Bank, Ecology Building Society, Triodos Bank, and Vancity – opted to stay in the NZBA, for now. Triodos Bank and Ecology warned they would reconsider their membership if the NZBA does not deliver tighter rules around the funding of fossil fuels. They are not bluffing.
Different from institutions that treat decarbonisation commitments as something to discard when the path gets rough, or to leaders warning of risks from greenwashing claims, values-based banks stand behind their commitments to action and accountability. They understand that we cannot engage with systemic problems with the mindset of the past; institutions cannot afford to “call all bets off”. Yes, there are frictions in a system in transition to net zero, but the future is not up for gambling. Amalgamated Bank, Ecology Building Society, GLS Bank, Triodos Bank and Vancity understand this well.
The world cannot afford flaccid institutions and their leaders. The waiting place is not an option. Neither is greenwashing. It is time to learn from values-driven organisations that not only believe it is possible to do things differently, but that also succeed in doing so.