The top five climate risk stories this week
1) Standard-setter launches net-zero target setting effort
Financial institutions may soon have a new blueprint for setting credible net-zero targets.
On Wednesday, the Science Based Targets Initiative (SBTi) released a “foundation paper” to help banks, asset managers, and other firms establish “quantitative net-zero targets linked with emissions reductions in the real economy.” It represents a first step by the group, which promotes emissions reduction targets across the private sector, to create a standard for financial institutions’ net-zero targets. SBTi published a net-zero standard for corporates in October last year.
The paper outlines four “guiding principles” to ensure financial institutions’ targets align with the goal of achieving a net-zero economy. The first, “completeness”, tells firms to set targets that cover “all relevant operational and financing activities” and encompass all their portfolio companies’ emissions. The second principle instructs them to align financing activities with the most recent climate science. The third implores them to influence and engage with clients and/or investees to help achieve economy-wide decarbonization, and the fourth emphasizes the importance of financing both emissions reducing activities and climate solutions, like green technologies.
The paper also provides the SBTi’s definition of a net-zero financial institution: one which aligns all financing with 1.5°C transition pathways and neutralizes residual emissions by financing carbon removal activities.
To build on this foundation paper, the SBTi intends to set up a net-zero expert advisory group to help draft target validation criteria, develop target-setting guidance, and create technical resources to assist financial institutions establish net-zero targets.
2) PCAF hits 250 members
France’s largest bank, BNP Paribas, joined the Partnership for Carbon Accounting Financials (PCAF) on Wednesday, taking the total number of firms signed up to the group to 250.
PCAF was set up in 2015 by a coalition of 14 Dutch banks to develop a uniform standard for financial institutions to count up and disclose their portfolio emissions. Today, its membership includes asset managers, asset owners, and insurers as well as banks, and collectively represents $71 trillion in assets. Of the 250 members, 69 have disclosed financed emissions according to the PCAF standard, which was released in 2020.
The group plans to issue a second edition of its standard in the second quarter, which will expand coverage to sovereign bonds and carbon removal activities. PCAF is also working on a carbon accounting methodology for insurers’ underwriting portfolios and financial institutions’ capital markets activities.
3) Net-zero insurers pledge emissions reduction framework
The UN-backed Net-Zero Insurance Alliance (NZIA) says it will release a target-setting protocol by January 2023 to help members eliminate the emissions associated with their underwriting portfolios.
In a white paper published Thursday, the alliance — which counts Allianz, Axa, Generali, and Zurich among its members — lays outs its thinking on insurance-specific metrics, client engagement strategies, and target setting for achieving net-zero emissions.
On the issue of how insurers should calculate the emissions associated with their sold policies, the group says it is working with PCAF to establish an industry-wide standard. On target setting, it is collaborating with the SBTi. The forthcoming target-setting protocol will help insurers establish individualized short-term science-based targets for their underwriting portfolios every five years aligned with a 1.5°C net-zero transition pathway.
The white paper also outlines three greenhouse gas mitigation tactics that insurers can execute: abatement, neutralization, and compensation. Abatement covers those measures insurers can take to zero out corporate emissions, for example by underwriting decarbonized goods and services. Neutralization covers activities to facilitate carbon removal, like the insuring of risks relating to transport and storage of sequestered carbon dioxide. Compensation includes efforts to support companies in preventing or eliminating emissions beyond their value chains, such as building up the voluntary carbon offset market.
4) BlackRock forecasts 75% of investments will be aligned with climate commitments this decade
$10 trillion asset manager BlackRock projects that by 2030, three-quarters of the sovereign and corporate assets it invests in on behalf of clients will be covered by science-based emissions reduction targets, up from 25% today.
In a statement Thursday on its net-zero approach, the firm said it believes all securities issuers “would benefit from developing and implementing robust transition plans”, and that increased take-up of science-based targets is a consequence of the shift to a low-carbon economy. As of September 30, 2021, corporate and sovereign assets made up 77% of BlackRock’s total assets under management.
BlackRock also reiterated that it will remain a long-term investor in carbon-intensive companies as they “play crucial roles in the economy and in a successful transition.” Furthermore, the asset manager said it does not target divestment from sectors and industries as a policy, since a “portfolio fully divested of such sectors in the near term may be at odds with enabling an orderly transition to a net-zero economy in the long term.”
Climate advocacy group Reclaim Finance said that without supporting policies, the 75% target is meaningless. “If BlackRock doesn’t disclose the concrete and timebound requests made to companies, this announcement is another smokescreen. The world’s largest asset manager cannot get away with vaguely defined commitments. It must act with urgency, especially with respect to the fossil fuel expansionists in BlackRock’s portfolio that are leading us to climate catastrophe,” said Lara Cuvelier, Sustainable Investment Manager at Reclaim Finance.
5) Curbs on Wall Street fossil fuel financing backed by New York pension fund
New York State’s largest public pension fund will back shareholder resolutions aimed at making Wall Street banks cut their climate risks.
A Monday statement sent by a representative of New York State Comptroller Thomas DiNapoli, who oversees the $280 billion Common Retirement Fund, claimed supporting the votes against Bank of America, Goldman Sachs, Citi, JP Morgan, Wells Fargo, and Morgan Stanley would “mitigate the systemic risks posed by unfettered climate change.”
The resolutions call on the banks to halt financing of new fossil fuel projects, in alignment with the International Energy Agency’s Net Zero by 2050 (NZE) pathway.
The six US banks provided 31% of all fossil fuel financing since the 2015 Paris Agreement and 29% of all financing in 2021, according to data collated by climate group the Rainforest Action Network.