An estimated US$1.3 trillion of climate finance per year is required by 2035 to effectively fight climate change, according to the 29th UN Climate Change Conference ( COP29 ), which concluded in Baku, Azerbaijan, last November.

This enormous amount means that the banking sector needs to play a more proactive role in facilitating sustainable investments divesting from unsustainable ones.

Banks worldwide are taking steps to achieve this goal, setting up their net-zero targets and disclosing their progress on climate financing. For example, 135 banks from 44 countries have become members of the Net-Zero Banking Alliance and agreed to apply the science-based sectoral 2030 targets for their financed emissions using 1.5°C scenarios. 

However, there is still a big room for improvement for banks to commit, align, and disclose their goals, strategies, and actions in pursuing their ambition. Tracking and reviewing the performance of banks’ net-zero alignment is necessary for the production of quality net-zero financing data and the formation of a consistent architecture for banks to disclose their net-zero progress.

A recent report by the Climate Bond Initiative ( CBI ) has identified four areas where banks can do better in net-zero disclosures and transition plans. Its findings are based on a review of previous relevant studies and an analysis of public disclosures of five selected global banks – Crédit Agricole, BNP Paribas, Barclays, Citigroup, and Santander.

Lack of comparability

First, the report finds a lack of comparability across net-zero disclosures, which results from the banks’ varying approaches in defining key sectors, coverage of business activities, and fragmented information from various reports.

For instance, CBI finds that BNP Paribas, Crédit Agricole, and Santander report “oil and gas” and “power generation” while Citigroup reports “energy and power” and “thermal coal mining”. Additionally, not all banks in the study report their exposures to key sectors such as residential real estate and automotive lending.

Second, the report notes insufficient clarity on the extent of the banks’ exposure covered by the net-zero disclosures.

For example, in disclosing net-zero-related business activities, banks often report the amount of financing instead of facilitated emissions ( emissions added or avoided due to a particular financing activity ), making it hard for interested parties to know how a financing deal contributes to emission reduction.

Moreover, banks’ net-zero targets are usually limited to the banking book but not the trading book and to corporate exposure, omitting non-corporate exposure.

For these two aspects, CBI proposes a convergence on standardized, priority disclosure across bank business lines and sectors, with measurable metrics.

Major challenges

Third, the report highlights that the sector targets of many banks’ net-zero targets are not aligned with the 1.5°C scenario, especially in carbon-intensive sectors such as residential real estate, which account for a large part of the banks’ financing exposure.

Finally, the report notes that the level of financing committed to the net-zero transition is still insufficient, which is a global issue and core to any climate finance discussion.

The CBI report finds that some banks have no exact business strategy to explain how they are going to reach their net-zero commitments. Indeed, clarity and transparency are still major challenges for banks’ net-zero disclosures, underscoring the need for further enhancements in their net-zero reporting in terms of both quantity and quality.

The findings offer lessons on how banks can further enhance their net-zero disclosures and plans so that their efforts can effectively contribute to the global march towards a net-zero future.