Last week, the bank-led and UN-convened Net-Zero Banking Alliance (NZBA) published its 2024 Progress Report. This report, the second in its kind, “summarises information received from 122 NZBA member banks on their progress up to the end of May 2024 on target setting and transition planning” to align their financing activities with net-zero emissions by 2050.

It is hard-to-swallow reading, as page after page an ever clearer picture emerges: NZBA does not ensure that its members are credibly planning to transition to net-zero emissions banking, instead allowing them to continue banking on climate chaos through insufficient target-setting and a lack of reliable policy-setting.

We had hoped that, as the NZBA puts it, “an opportunity to take stock of overall progress and growth” would show actual progress and growth towards net-zero banking by 2050. Instead, the NZBA continues to fail on its purpose and tracks ever further behind its own goals.

Another stocktaking exercise without any assessment of outcomes

While this new report dives into the characteristics of sectoral decarbonisation targets (such as emissions scopes, metrics, scenarios, asset classes and targeted emissions reductions), there is no assessment being made of member banks’ actual progress towards their sectoral targets, and therefore, to their net-zero objective. Indeed, the progress report only indicates that “more members disclosed sectoral emissions profiles that showed how their financed emissions had changed and progressed since their emissions baseline was measured”. However, no data is disclosed to support this statement. It almost begs the question: is target-setting an end in itself for NZBA member banks? But what is the purpose of sectoral target setting if it doesn’t lead to real-world emissions reduction?

BankTrack currently keeps track of the decarbonisation targets of 90 banks in the coal, oil & gas, power generation and iron & steel sectors. While we assess similar characteristics as those included in the progress report (with findings that are roughly equivalent to the NZBA’s percentages), we also use publicly available data to monitor banks’ progress towards their sectoral targets.

Our data shows that, although most banks are reducing their financed emissions in these sectors, some are doing the opposite. For instance, out of the 73 banks in our tracker that have set a decarbonisation target for power generation, seven banks reported an increase compared to the baseline they need to reduce to meet their targets.(1) While some of these banks provide an explanation for this deviation, it shows that having a target in place does not in itself ensure that banks are actually reducing their emissions towards it.

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Challenges previously identified haven’t been addressed

In its previous progress report, the NZBA acknowledged that its members were facing common challenges due to “the technically demanding process of setting and meeting targets”. Therefore, it announced that, “an in-depth analysis of target and progress towards net zero will be tracked”, and that the 2024 report would focus on the following challenges: coverage of targets, scenario usage, and disclosure in absolute and intensity terms.(2)

Yet, none of these challenges are discussed in the new report. For instance, while the NZBA reiterates the necessity for member banks to use 1.5ºC scenarios in line with the latest science, with low or no overshoot, it once again admits that “several banks have used scenarios for target setting that do not meet these criteria, using the comply or explain provision in the Guidelines”.(3)

In this way, the NZBA leaves room for banks to use such climate scenarios as long as they have an explanation, and does not provide any guardrail to ensure that banks’ interim targets are consistent with their commitment to limit global warming to 1.5ºC by 2050. For instance, the NZBA reports that 7% of power generation decarbonisation targets use the International Energy Agency (IEA) Sustainable Development Scenario (SDS) or Below 2 Degrees Scenario (B2DS).(4)

More emphasis should be placed on lending policies

On top of previous challenges identified but not addressed in this report, the NZBA presents “energy mix decarbonisation targets” – which group together emissions from carbon-intensive energy (coal, oil and gas) with low-carbon energy (nuclear, renewables) – as a valid approach. The NZBA does refer to the International Energy Agency Net Zero Emissions by 2050 (IEA NZE by 2050) scenario and the need to shift from a global energy system mostly dependent on fossil fuels to one depending on low-carbon generation. However, it does not mention the IEA’s finding that “no new long-lead time upstream oil and gas projects are needed in the Net Zero Emissions scenario, neither are new coal mines, mine extensions or new unabated coal plants”.(5)

Enabling these kinds of targets can lead to absurd situations, such as JPMorgan Chase publishing an energy mix target in November last year, which could allow the US bank to progress on its target without reducing its coal and/or oil and gas financing. Although energy mix targets shouldn’t be an option, it would be helpful if, on top of their coal, oil & gas and power generation targets, member banks would disclose their ratio of renewable energy versus fossil fuel financing using BNEF’s methodology.

On a positive note, it is good to see that the NZBA mentions “lending policies” as a tool to help banks meet strategic business objectives. Indeed, ambitious lending policies could ensure that banks stop financing fossil fuel developers, which is crucial to meet the 1.5ºC objective. Yet, the data disclosed are insufficient to identify the different levels of ambition amongst NZBA member banks. Indeed, while 62% of banks report having an oil & gas policy, most of them have only adopted limited restrictions for unconventional oil & gas project finance, far away from progressive NZBA members such as Triodos Bank (no exposure to oil & gas), La Banque Postale (phase-out for oil & gas upstream and midstream activities by 2030) or Danske Bank (no financing to oil and gas exploration and production companies with expansion plans).

In the report, the NZBA praises client engagement strategy as a key enabler for achieving a net-zero transition plan, but it does not assess the quality of such transition plans.(6) This is problematic, as engagement strategies should be limited to clients that have shown a concrete willingness to transition in line with a 1.5ºC scenario.

This is why NZBA members should adopt strict exclusion policies for all fossil fuel companies that continue to develop new coal, oil and gas projects, as a prerequisite for client engagement strategy.

All or nothing for NZBA’s future

With this report, the NZBA has once again failed to demonstrate that decarbonisation targets are leading to real-world emission reductions. Meanwhile, the NZBA has still not explicitly acknowledged the fundamental incompatibility of aiming for net-zero banking by 2050 and financing companies developing coal, oil and gas expansion projects today.

Last March, some of the most progressive NZBA members pointed out the insufficiency of the new Guidelines but decided to remain committed to the Alliance. The combination of having both progressive fossil-free banks and some of the biggest fossil fuel financiers aboard provides the NZBA with a unique opportunity to strengthen net-zero commitment across the board.(7) However, the initiative’s lack of ambition revealed by this report leaves little doubt as to which of its members are most influential. If it is not ready to push laggards forwards, it is highly unlikely that the NZBA will be able to keep its progressive members on board.

Will the NZBA keep net-zero only in name, and capitulate to business as usual, or finally rise to the occasion and be a driving force towards real net-zero banking? The near future will tell.