From laggards to leaders

How our banks can become climate leaders, not laggards [ic-leaf]

We’ve researched the major banks across Australia to uncover the true story behind their public commitments. Our methodology scores banks across four key areas:

Targets

Strategy & Action

Governance

Reporting

Cutting pollution rapidly this decade (ranked out of 21 points)

The largest five banks in Australia have all made a commitment to reach net-zero emissions by 2050 or sooner. But the climate crisis requires big cuts in pollution this decade. Every step banks take today to combat greenhouse gas emissions matters more than their actions in one or two decades.

This section evaluates the actions banks have committed to take during this critical decade, examining the strength of the 2025 and 2030 targets that banks have in place to support their 2050 net-zero commitments. It analyses whether banks have set a comprehensive short-term emissions reduction target and targets for the polluting industries they finance. It also assesses the actions that banks are taking to support and fund solutions to drive down emissions such as renewable energy and whether banks have set an ambitious target to source the majority of their electricity from renewable energy sources.

How the banks actually drive down pollution (ranked out of 35 points)

Strategy and action measures the real world policies and practices’ that banks have in place to achieve their short and long-term commitments to reach net-zero emissions.

Banks lost significant points in this section for their continued financing of new or expanded coal, oil or gas production and deforestation. In order to limit warming to 1.5°C above pre-industrial levels, we need to have policies and processes right now which end the flow of money to climate-wrecking industries – commitments to take action in the future are not enough.

This section also assesses whether banks require their customers to adopt a transition plan that is aligned with a 1.5°C pathway and whether banks provide transparency on how they assess the credibility of these transition plans.

How banks will assess the credibility of their customers' transition plans is incredibly important, as there exists a great deal of variability in the strength and integrity of companies’ plans to reach net zero, with many companies lacking ambition.

It also scores banks based on whether they have a policy against deforestation, as protecting and restoring nature is critical for a safe climate.

Making business leaders accountable (ranked out of 28 points)

When it comes to any topic, it is very important that leaders hold relevant expertise, have high quality information to effectively manage risk, and that responsibilities are clearly allocated to ensure accountability. It is also important that leaders have incentives in place to ensure that they are motivated to perform their best.

This section analyses the governance structures that banks have in place to inform and execute their net zero commitment. It assesses whether banks have adequate information to guide decision-making and whether there is clear accountability for climate related topics. It also assesses whether the leaders of the banks have the relevant skills needed to effectively manage climate-related risks and if they are appropriately incentivised to manage the risks to the best of their ability.

How we know what’s actually happening (ranked out of 16 points)

Disclosing information transparently and consistently is essential for comparing the performance of banks. In Australia, we don’t yet have mandatory climate-related financial reporting, so banks report varying levels of information and in different ways.

This section assesses whether banks comprehensively disclose their financed emissions, provide transparency on the method used in their calculation and whether they obtain a third party opinion on their sustainability reporting. It also assesses whether the risks of climate change have been taken into consideration in the audit of the banks’ financial statements and whether banks have provided a list of activities that are eligible for financing based on their contribution to positive social or environmental outcomes.