Two-thirds of UK banks have no net zero target

09 November 2020 Consultancy.uk

While a glut of private and public entities have been publicising plans to become carbon neutral before 2050, a new study has revealed that only around one-third of Britain’s largest banks have net zero targets. Unless they change course, this could see a huge number of financial institutions fall foul of new climate change laws in the coming years.

As of 2019, the UK became the first major economy in the world to pass laws aiming to end its contribution to global warming by 2050. The target will require the UK to bring all greenhouse gas emissions to net zero by 2050, compared with the previous target of at least 80% reduction from 1990 levels. As a result, 2020 has subsequently seen a growing number of private and public entities aiming to be zero-carbon within a short amount of time.

According to a recent survey of 17 of the UK largest banks, many are on target to meet short-term goals, but have not moved much with regards to their net zero aims. An analysis from PwC has assessed banks regulated by the Prudential Regulation Authority (PRA) – which has several requirements in its 2020-2021 business plan concerning the physical and transition risks of the net zero transition. These requirements provide a mandate for banks to “fully embed their approaches to managing climate-related financial risks by the end of 2021,” and around 70% of the banks surveyed said that they have already met these goals.

Two-thirds of UK banks have no net zero target

While the vast majority of banks are confident that they will meet or beat the PRA’s deadline, however, just five of them have net zero targets, or science-based emissions targets which match or exceed the UK’s national long-term climate goals. Included in this list are Barclays and NatWest Group, formerly RBS. At the same time, eight of the banks are yet to conduct scenario analysis on their current portfolios – something which can help organisations track what their risk profiles would look like under varying degrees of warming, including the Paris Agreement’s 2C trajectory.

Without taking these steps, PwC has warned that banks risk falling foul of upcoming laws regarding the carbon emissions of UK businesses. For example, the Bank of England’s climate risk stress tests will soon conduct scenario analyses on the UK’s largest banks, as well as the broader national finance system, while under the Green Finance Strategy, Task Force on Climate-related Financial Disclosures-aligned disclosures will be mandated for many organisations in the financial sector in the coming years.

PwC’s UK Partner for Sustainability and Climate Change Jon Williams commented, “Both the Bank of England and the Prudential Regulation Authority have clearly set out that climate change brings financial risks that need to be managed now. However, our survey shows that even though there remains a great willingness to address this issue, more needs to be done to turn this into feasible action.”

Respondents informed PwC that a lack of data was one of the key challenges in correctly understanding the possible climate-related risks their operations posed. There are a number of new networks aiming to help members with compiling and analysing such information – as seen with the recent launch of the AI-driven Cee0 network – however, as Williams went on to note, if banks are to develop a strategic approach to climate risk in timely fashion, “they first need to build the foundations, and time is running out.”


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