There is no consensus on the meaning of ‘net zero’ among bankers

The term “net zero” quickly entered the Wall Street and City of London lexicon, but there is no consensus on what it means, leading to misrepresentations and confusion.

To help guide the financial industry, the Science Based Targets (SBTi) initiative, which certifies corporate climate policies and introduced a net zero standard for businesses last month, released a report aiming to to reach a consensus.

The document should be seen as a “first step” in developing a science-based net zero standard for financial institutions, SBTi said.

The work is important because the world’s largest banks and fund managers have committed to net zero CO2 emissions by 2050 as part of Mark Carney’s Glasgow Finance Alliance for Net Zero.

The “lack of consistent principles, definitions, metrics and evidence of effective strategies to meet the targets limits the ability of financial institutions to support the emission reductions in the real economy that are needed to stabilize temperatures 1.5 ° C above from pre-industrial levels, ”said SBTi.

The lack of consistency “around what net zero means allows financial institutions to claim that they are doing more than they are actually doing and makes verifying any request impossible,” said Cynthia Cummis, technical director and partner. founder of SBTi.

By providing financial support to polluting companies, banks, asset managers and insurers are the great enablers of global warming. They could use that same leverage to propel the companies they invest in and lend to to decarbonize their operations, and by investing in green technologies.

Unlike corporations, most of the banks’ contribution to climate change does not come from their operations, but from the financing they provide. For finance firms to help align the global economy with the goals of the Paris climate agreement, they must use “their shared influence and responsibility to align incentives and remove barriers to reducing emissions,” SBTi said.

The SBTi report was scheduled for “finance day” at COP26, the United Nations conference on climate change in Glasgow, where Mark Carney will reveal the vast sums of finance capital that now support net zero.

SBTi said it is exploring three broad approaches on how finance companies can achieve net zero emissions: reducing so-called financed emissions according to 1.5 ° C decarbonization pathways for each sector; aligning “all financing activities with the relevant net zero pathways such that each individual asset achieves a net zero status”; and enable financial institutions to “contribute to net zero in a way that ensures transitional funding for both decarbonization activities and an explicit shift to finance more climate solutions.”