Bank financing greases the wheels of economic activity.
They deploy capital towards businesses and economic activities that will deliver goods and services that people depend on in the future. For this reason, banks have a uniquely important role to play in support of global decarbonisation.
Put simply, if banks continue to finance carbon-intensive activities that are misaligned with a 1.5˚C temperature outcome, the world will have little hope in achieving its climate goals.
While the need to align financing with a net zero future is now well understood within most bank boardrooms, action to change financing decisions has been too timid. This is why shareholders in banks need to step up and make clear their expectations that banks align all their financing – whether it’s lending, project finance or capital markets activities – with the goals of the Paris Agreement.
This is not just right for the planet, it is necessary to underpin banks’ long-term capital strength. With the release of the Net Zero Banking Standard, investors now have a coherent framework for supporting banks in delivering on this ambition, and banks have a clear articulation of investor expectations.
Sarasin & Partners is co-chair of the Net Zero Banks Working Group (of the Institutional Investors Group on Climate Change) who drafted the Standard.