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Why are banks afraid of Science-Based Targets?

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Popular scheme is promising way to shift companies towards net zero

Most of the great and good of global banking, with the notable exceptions of Goldman Sachs and JP Morgan, have joined the Net Zero Banking Alliance.

They have pledged to put the greenhouse gas emissions of their lending and investment portfolios on a pathway to reach net zero in 2050.

Actually fulfilling this will be a tough ask. They have a quarter of all global bank assets, totalling $39tr. They can’t just invest in super-green companies, but must finance the economy as a whole. Getting on that path to net zero means persuading all the companies and households they finance to do the same.

How can a company tell if it is on the path to net zero — and how can a bank know if a company is?

So far, one of the most promising answers is the Science-Based Targets Initiative. It provides a structured way for companies to set targets for emissions cuts. The SBTi checks them and can validate them as fast enough to be consistent with a global pathway to, say, 1.5°C of global warming.

SBTs are not perfect — like any system, they have their critics. But they are up and running, generally regarded as robust, and dovetail well with the way companies work and the incentives they face. That’s why they are popular with companies: nearly 1,800 are already going through the process.

And they work. Research shows companies with SBTs have cut emissions by 6.4% a year, much faster than peers.

For the past two years, CDP, one of the organisations that runs SBTi, has organised a campaign to urge companies to sign up. This year’s campaign, targeting 1,600 companies, is backed by 220 investors with $29tr of assets. But they include only seven banks — and only two major Western ones, Crédit Agricole and La Banque Postale. Why are the rest hiding?

Perhaps banks have reservations about SBTs and think companies can do better. If so, why aren’t they advocating an alternative solution as clearly and vocally as CDP and the investors?

Or are banks afraid investors and companies will turn round and say to them: ‘Now you set a Science-Based Target’?

There is no time to waste. Right now, SBTs are one of the most realistic ways to get companies moving towards net zero. They are a godsend to banks, which claim they want the same thing. By not joining the campaign to promote them, banks are missing an open goal.

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