Spotlight on sustainability: How banks can overcome the challenges of achieving net-zero emissions by 2050

Many of the worlds’ largest banks have committed to achieving net-zero emissions by the middle of this century, as part of efforts to limit the global temperature rise and prevent irreversible climate change. Banks face a myriad of challenges on this journey, but for those that get it right, the business opportunity is huge.

Below are key takeaways from our Banking Essentials webinar held in September 2022 on this topic, in conjunction with the European Banking Federation. To view the on-demand replay, please click here.

1. Data is the biggest challenge facing banks.
   Among the roughly 300 attendees polled, almost 70% cited the absence of comprehensive, accurate data as the biggest challenge to banks in reaching net-zero by 2050. The number of third-party providers is growing in this area, but this must be accompanied by data gathered directly from clients. Climate-related data should be embedded into existing data streams and become part of standard business practice, while good governance can help ensure that data is being used effectively and shared across the bank.
2. Climate stress tests are not perfect, but banks can still learn plenty from them. The ECB and the Bank of England both warned that their recent climate stress tests did not capture the full extent of the risks facing banks due to their 30-year horizon. Nevertheless, these exercises can help highlight deficiencies in banks’ reporting processes, and inform how lenders can develop a climate risk framework and amass crucial data.
3. Banks’ strategies must stand up to scrutiny
   Those that don’t are likely to lead to accusations of greenwashing. To avoid such a situation, banks must set robust guidelines and targets that are science-based, such as those adopted by the Net-Zero Banking Alliance. These targets must be focused on areas where an impact can really be made. Crucially, there must be accountability for performance against these targets through regular reporting and transparency.
4. Europe’s energy crisis has made the journey to net-zero more complex
   In the short term there will be increased coal and gas use, which will have implications for banks that finance the energy sector. In the medium term, it could accelerate the transition as the situation presses home the urgency of developing more sustainable energy sources. The key will be how to manage this balance and pursue a transition that is just.
5. Net-zero is not just a risk issue — it’s an opportunity
   Reaching net-zero by 2050 will require $275 trillion of investment worldwide, according to estimates by McKinsey. Banks can play a significant role in enabling this reallocation of capital, be it by funding green infrastructure projects or developing new advisory services. This makes the journey to net-zero one of the biggest business opportunities for banks this decade.