Net Zero Banking Assessment Framework launches as new standard for banks is introduced

The Institutional Investors Group on Climate Change (IIGCC), in consultation with the Transition Pathway Initiative Global Climate Transition Centre (TPI Centre), confirmed today it has launched a Net Zero Standard for banks, setting out investor expectations on the transition to net zero.

The standard is intended to support "constructive engagement with banks to aid ongoing implementation of climate commitments," the IIGCC explained in a statement. 

"Where necessary, it will continue to evolve and be refined to reflect relevant developments, including new methodologies, policy and regulation."

The standard is built around the 10 areas: bank commitments; targets; exposure and emissions disclosure; emissions performance; decarbonisation strategy; climate solutions; policy engagement (lobbying); climate governance; just transition; and annual reporting and accounting disclosures; and complements the Net Zero Investment Framework (NZIF).

Framework

Alongside the standard, the TPI Centre has launched a Net Zero Banking Assessment Framework, which is a set of measurable indicators, sub-indicators, and scoring guidance for assessing the alignment of banks against the goals of the Paris Agreement. 

The TPI Centre will use the Net Zero Banking Assessment Framework to assess 26 global banks across Europe, North America and Asia annually, with the assessments due for publication this summer. 

"As well as highlighting areas for improvement, the assessments will capture the progress many banks have made to date and the ongoing implementation of their stated climate-related policies and plans," the TPI Centre said.

The final Standard and Net Zero Banking Assessment Framework follow multiple rounds of investor consultation and a pilot study conducted in 2022. 

The pilot study found that while banks have stepped up in committing to net zero, disclosure on implementation of those commitments is less consistent. It is the same banks for which the TPI Centre will publish the inaugural assessments later this year.

Working Group

Through a newly created Net Zero Banks Working Group, IIGCC will support investor engagement with a focus list of 20 banks in Europe, Canada and Asia.

IIGCC’s Net Zero Banks Working Group includes more than 25 investors with input into the standard given by Natasha Landell-Mills of Sarasin & Partners and the Stewardship Team at EOS at Federated Hermes Limited, including Bruce Duguid and Howard Risby.

“Due to the nature of their activities, banks have an outsized role to play in whether the global economy successfully decarbonises or not," said Stephanie Pfeifer, CEO, IIGCC.

"For investors with net zero commitments, many of which will include investments in banks, it will therefore be vital to engage with banks over their transition plans in order to fulfil their own commitments.”

Investor contributions

Over 25 investors, including Amundi, Legal & General Investment Management, Nest Corporation, Schroders and Fidelity International have contributed to the development of the Standard.

“Banks have a critical role to play in the net zero transition," said Charlotta Dawidowski Sydstrand, Head of ESG at pension giant AP7.

"Clear reporting on net zero actions and goals is essential to combat greenwashing and to ensure that efforts are correctly focused on achieving real-world emission reductions," she added. 

Meanwhile, Grégoire Haenni, chief investment officer at CPEG, said: “Asset owners understand the need to develop a coherent net zero engagement strategy with clear milestones and objectives to support companies transition towards a low-carbon economy." 

He added: "In this context, we support IIGCC’s Net Zero Standard for Banks and the aligning Assessment Framework. Specifically, it will help take engagement activity to the next level, as it allows for a constructive dialogue that support banks in their transition to net zero emissions.”

Amundi's Caroline le Meaux, the firm's global head of ESG research, engagement and voting, said in agreement that “banks are key in the global economy and have therefore a role to play in the energy transition alongside public authorities and their clients."