Responsible Banking Framework: Strengthening Climate Ambition for a Sustainable Future
Highlights:
- Strengthened climate ambition for responsible banking
- Signatories expected to align portfolios with 1.5°C pathway
- Developed countries aim for net-zero emissions by 2050
- Support documents available for target setting
- Different expectations for developed and developing countries
The Principles for Responsible Banking, the global benchmark for sustainable banking, has taken a significant step forward by strengthening its climate ambition to tackle the pressing challenge of climate change. At the 2022 Board Meeting, signatories made a crucial decision to align their portfolios with a 1.5°C pathway, in accordance with the Paris Agreement. This commitment entails achieving net-zero greenhouse gas (GHG) emissions by at least 2050 for banks operating in developed countries.
Under Principle 1 of the Principles for Responsible Banking, all signatories are expected to align their portfolios with the goals of the Paris Climate Agreement, aiming to limit global warming to well below 2°C, preferably 1.5°C, compared to pre-industrial levels. Recognizing the need for more ambitious climate targets, the Principles now specifically require signatory banks with significant GHG emissions to align their portfolios with a pathway towards 1.5°C warming.
For banks in developed countries, this means adopting a net-zero GHG emissions target by at least 2050. On the other hand, banks in developing countries are also encouraged to align with the 1.5°C ambition of the Paris Agreement but are not necessarily expected to achieve net-zero GHG emissions by 2050.
To support banks in setting their climate mitigation targets, UNEP FI has developed a range of resources tailored to different stages of maturity, including the Foundations of Climate Mitigation Target Setting and the Guidelines for Climate Target Setting for Banks.
Differentiating from the Principles for Responsible Banking, the Net-Zero Banking Alliance (NZBA) serves as the climate-focused element and accelerator within the global framework. NZBA members, both from developed and developing countries, commit to achieving net-zero emissions by at least 2050. While NZBA members set targets within 18 to 36 months, Principles for Responsible Banking signatories have a timeline of 4 years. NZBA members also pledge to use the Guidelines for Climate Target Setting for Banks, which are highly encouraged for Principles for Responsible Banking signatories as well.
The distinction in expectations between developed and developing countries stems from the principle of common but differentiated responsibilities. Developed countries, as leaders in combating climate change, are expected to take the lead, while recognizing the challenges faced by developing countries in terms of data availability, scenarios, and national goals for GHG emission reductions. This flexibility allows banks in developing countries more time to reach net-zero emissions.
The Principles for Responsible Banking, with over 300 signatory banks comprising nearly half of the global banking industry, provide a powerful framework for sustainable banking. Through aligning their strategies, decision-making, lending, and investments with the UN Sustainable Development Goals and international agreements like the Paris Climate Agreement, banks actively contribute to a more sustainable future. The inclusion of the Net-Zero Banking Alliance further underscores the climate-focused commitment within this global framework.
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