Banks must provide institutional investors with more information on climate strategies, according to the head of an organization of European pension funds and asset managers seeking to curb carbon emissions.
“For investors considering their own net-zero alignment and stewardship of portfolio companies, it is critical that they have sufficient information on companies’ transition planning, including banks,” said Stephanie Pfeifer, chief executive officer of the Institutional Investors Group on Climate Change, in a press release.
The statement followed an IIGCC report on 27 major European banks, which found the banking sector must accelerate its decarbonization efforts if it’s to help prevent global temperature rises from exceeding 1.5 C.
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The IIGCC represents 375 European institutional investors, most of which are defined benefit pension plan sponsors or asset managers. Its membership’s combined net assets are valued at about €51 trillion. In conducting its analysis, the organization considered the banking sector’s existing net-zero commitments, short- and medium-term carbon-reduction targets, overall decarbonization strategies, climate engagement strategies, climate governance policies and auditing policies.
While the report found all but one of the banks had published net-zero targets, just three included setting targets to reduce financed Scope 3 emissions. It also found policies to withdraw financing from activities that aren’t aligned with a 1.5°C scenario were underdeveloped, though one in three banks had existing strategies in place.
“Most banks establish board-level oversight of their climate change policy and of climate risk management,” said the report. “However, board-level oversight of the bank’s net-zero policy remains rare. Executive remuneration is yet to be tied to progress against financed emissions reduction targets.”
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The IIGCC also included several recommendations for banks looking to play a role in curbing global warning. It advised the financial institutions to expand decarbonization targets to apply to all material business segments and sector and also suggested they make improvements to the quality of non-financial disclosures on emissions.
“It is important to recognize that methodological barriers exist that can prevent banks taking more ambitious actions, such as quantifying financed emissions and setting targets to reduce them,” said the report. “In these domains, tools are still in development or in the pilot stage. Rapid progress is now needed to enable banks to fulfill their role as catalysts of the low-carbon transition.”