Net-zero emissions by 2050? The financial sector is an integral part of the solution to combat climate action. In the Paris Agreement, we learned that one of the long-term goals in resolving climate change is “to make all financial flows consistent with a pathway towards low-emissions, climate-resilient development.”
Ultimately, major financial institutions, even private sector banks, must accomplish net-zero emissions by 2050. And reduce emissions by 50% by 2030.
Still, the shift of larger banks to align with the Paris Agreement has yet to happen. With such an eager and undoubtedly challenging mission of climate action, let’s look at how banks can advance their commitment to net-zero emissions.
Net-Zero Alliances: What’s at Stake?
But first, let’s talk about the Net-Zero Banking Alliance and the Glasgow Financial Alliance for Net Zero (GFANZ).
In aligning with the Paris Agreement, the UN assembled the Net-Zero Banking alliance and brought banks from across the globe in committing to net-zero emissions by 2050.
With 90 banks involved, the industry-led alliance was co-launched in April 2021 with an immense aim in mind. To be the catalyst to support and implement decarbonization strategies and create an international framework that would boost the economy shift towards net-zero emissions.
Similarly, the UN Special Envoy on Climate Action and Finance initiated the Glasgow Financial Alliance for Net-Zero. The GFANZ also aligns with the Paris Agreement’s goal in directing the global economy towards net-zero emissions.
Both alliances play a prominent role in steering finance actors across the globe. Although speeding up the goal is not a walk in the park, challenges bring new opportunities to work with climate change.
Consequently, such opportunities can strengthen climate research and emissions knowledge for corporate sustainability leaders in sustainable finance.
The Challenge Remains for Banks
Seemingly, sustainable finance offers a great opportunity commercially, making the shift not too difficult to align with the Paris Agreement. And yet, renowned global banks sign on to finance an estimated total of $750 billion in fossil fuels in 2020. And commit to net-zero.
Evidently, this news reminds leading players and members of the alliances in this race that the tremendous challenge calls for immediate actions.
In making strides, the ambition of this goal requires banks to be committed to reducing Scope 3 emissions. This means if certain banks are financing projects with fossil fuels, they hold them accountable for the emissions these projects produce.
Scope 3 looks to finance actors to take accountability for the carbon dioxide emissions within their operations and supply chains, including its users and products.
While an aspirational goal will act on the urgency of climate change, progress is still slow. However, banks still have a few approaches to improve on and commit to the primary goal.
The Sprint towards Net-Zero: Strategy
The pledge to net-zero emissions is not only a commitment for corporations, but it is also a commitment that involves clients to be on board. Crucially, it requires attention and dedication to working with product innovation.
Therefore, banks aligned with the Paris Agreement can offer client engagement strategies and focus on relationship managers, supporting sustainability and financial incentives between the banks and the clients.
In particular, the climate engagement strategy must entail critical steps, including:
- Collecting clients’ emissions-related data,
- Having a reduced-emissions target,
- Sharing best practices through client benchmarking
- Creating comprehensible policies on client engagement,
And supporting relationship managers to be trained well.
Nevertheless, the Paris agreement and the race to net-zero emissions call for businesses to change. As we mentioned earlier, the change itself is challenging. If clients can’t enquire into climate action, banks can still support and advise them to adjust to low-carbon incentives.
To reach the finish line, finance actors within the private sector must also take part in the race to net-zero emissions. With the alliances guiding this race, the commitment needs all hands on deck to fulfill this ambitious goal.
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