Can UK banks stay the course on their climate pledges?

Welcome back. UK banks were at the centre of the financial sector’s rush of enthusiasm on climate issues a few years ago, as the country played host to the COP26 summit. Now that the green finance hype cycle has turned, have they quietly turned away their once-trumpeted climate pledges?

Much less than you might think, as I explain below. But their latest shareholder reports still offer cause for concern.

net zero targets

UK bank reports highlight troubled climate outlook

Last week, UK-based bank HSBC pushed back its net zero target for operational emissions by 20 years.

Shocking evidence of financiers’ declining interest in climate action, now that it’s no longer seen as such a sexy subject in bank boardrooms? Not necessarily. In some respects, the annual reports this month from HSBC and the other four big UK banks have shown an increasingly serious approach to the subject.

But they also provided a stark reflection of the wider disappointing pace of progress in tackling climate change — and hinted at more serious bank policy retreats that may yet be in store, if government action doesn’t accelerate.

A rethink on carbon credits

Let’s start with that HSBC announcement.

In 2020 and 2021, many multinational companies announced pledges to achieve net zero carbon emissions by 2050, in line with the targets set by major economies. HSBC was one of a smaller number of companies that set a far more ambitious net zero target of 2030.

In its annual report last week, HSBC said it was now aiming to eliminate net emissions from its operations (such as staff travel and office heating) by 2050 instead of 2030. It cited “latest best practice on carbon offsets”, reflecting today’s widespread consensus that carbon credits should play only a small role in corporate net zero plans.

(Barclays, meanwhile, plans to introduce an interesting approach that I highlighted last year — applying an internal carbon price to staff business travel, and using the proceeds to buy carbon removal credits.)

In any case, banks’ relatively small operational emissions are hardly the key issue here. Far more important is the finance that they provide to the energy transition. On this front, there’s no evidence that they’ve seriously watered down their objectives since 2021.

Doing the sums

HSBC has “provided and facilitated $393.6bn of sustainable finance and investment” since 2020, on track for its goal of at least $750bn this decade. NatWest, which had promised to provide £100bn in “climate and sustainable funding and financing” between July 2021 and the end of 2025, had reached £93bn by last December. Standard Chartered has “mobilised” $121bn in “sustainable finance” since 2021, in line with its goal of $300bn by 2030.

My point here is not to argue that the big UK banks are doing a champion job for the climate. They remain under heavy scrutiny from environmental groups for their exposure to the fossil fuel sector — especially Barclays, which does more oil and gas finance than any other bank in Europe. And their varying definitions of terms like “sustainable finance” make it hard to draw apples-to-apples comparisons of their performance.

Meanwhile, the FT today reported cuts to the team under Standard Chartered’s chief sustainability officer.

But the annual reports they published this month do not back a narrative that UK banks have abandoned the green goals that they set amid a more optimistic environment four or five years ago.

Murky outlook

Not yet, at least. Several of the banks warned that they planned to review their climate targets following this Wednesday’s release of the UK Climate Change Committee’s carbon budget, which will set out the medium-term emission cuts needed for the country to meet its 2050 net zero target.

That document — and the government’s response to it — will give a sense of whether the UK can improve a trajectory that, according to the CCC, is on course to miss its national climate goals. Other major economies are still further off track.

Compared with UK banks’ annual reports four years ago, this month’s publications put far more emphasis on the need for more ambitious government action in this field. “Our climate ambitions are unlikely to be achieved without timely and appropriate government policy and technology developments,” HSBC warned.

Some might view that as an attempt to prepare the ground for a retreat on prior pledges. But the underlying point is valid — and the increasing focus on it may prove useful. If the world is to achieve its climate goals, governments, not banks, will need to play the lead role.

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