The UK and the U.S. are both major global financial hubs, with a lot at stake when it comes to achieving Net Zero. In this article, we dive into the differences between U.S. and UK bank decarbonization strategies.
Climate disclosures
UK banks are widely considered to be ahead of others when it comes to climate-related disclosures, most likely because of the proactivity of their regulators. The UK Prudential Regulation Authority (PRA) was the first financial regulator to publish supervisory expectations on the management of climate-related financial risk in 2019. The Authority regularly remings banks that they are expected to assess their exposure to climate-related financial risks in the way they assess other drivers of financial risks.
In the U.S., the Securities and Exchange Commission published a proposal for climate risk disclosures in March 2022, and is expected to finalize it by the end of the year. These and the PRA’s disclosure expectations are aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), which were published in 2017 to help the financial sector adapt to climate change. These have been widely supported across the industry, but according to the 2021 TCFD Status Report, adoption is much broader in Europe, with 50% of listed companies having published TCFD-aligned financial reports in 2020, compared to 20% in North America.
Operational decarbonization
In the banking sector, scope 1 and 2 emissions represent only a small fraction of total carbon footprint, with much more coming from lending (scope 3). As such, carbon neutrality in banks’ own emissions from operations and energy is generally the first milestone to be achieved.
In the UK, NatWest and Barclays have been carbon-neutral in scope 1 and 2 emissions since 2020. Lloyd’s Bank already uses 100% renewable energy and plans to reach Net Zero operational emissions by 2030. HSBC is also working towards a Net Zero by 2030 target for its own operations, while Standard Chartered plans to reach this goal by 2025.
Meanwhile in the U.S, Wells Fargo and Bank of America achieved carbon neutrality for their own operations in 2019, while JP Morgan reached this goal in 2020 and Morgan Stanley plans to be carbon neutral in 2022.
Here it’s interesting to look at the wording used by banks: in the UK, Net Zero tends to be the preferred target, which involves a drastic reduction in emissions before carbon offsets can be used to “neutralize” remaining emissions. This target is more difficult to achieve, but much more effective to combat climate change. In the U.S, banks seem to prefer reaching the words “carbon neutrality”, which can be achieved mostly through carbon offsetting, with no minimum reduction. They reached their carbon neutrality goal earlier than UK banks, and are now focusing on reducing their operational emissions. Citi is the only large U.S. bank with a Net Zero target for its own operations (by 2030).
Funding for fossil fuels
U.S. banks are among the biggest financiers of fossil fuels worldwide. The Banking on Climate Chaos report exposes the ‘Dirty Dozen’, the 12 banks that have financed the most fossil fuels since the signing of the Paris Agreement. Five of those are American, including four at the top of the list: JP Morgan (US$382B), Citi (US$285B), Wells Fargo (US$272B) and Bank of America (US$232B). Morgan Stanley is the last of the 12, with US$137B.
In April 2022, Wells Fargo, Bank of America and Citigroup all proposed changes to their fossil fuel funding policies, but were only backed by around 11-13% of shareholders.
Meanwhile, only one UK bank (Barclays) made the Dirty Dozen list, with US$167B of funding to fossil fuels since 2016. But even though the amount of financing to polluting industries is lower than in the U.S, banks in the UK did not fare much better than their American counterparts when it comes to their strategy to decarbonize lending. Only Lloyd’s Banking Group has made some exclusions from its portfolio: new oil field developments and companies involved in the exploration or development of oil sands can no longer receive funding from the bank.
On the other hand, all large banks in the UK and in the U.S. have exclusion policies in place for coal financing, with UK institutions tending to be stricter than in the U.S.
Customer carbon offsetting
In addition to the above efforts, several banks have launched carbon tracking tools for their private customers, promoting individual climate action. This is particularly common in Australia, with Commonwealth Bank and Westpac both offering this feature. But none of the large U.S. banks analyzed in this article appear to offer this option. In the UK, NatWest has partnered with CoGo to offer customers a summary of their carbon footprint, as well as tips to reduce it, through its banking app.
However, few banks also give their clients the option to offset their carbon footprint. In Spain, Santander Bank has launched a new feature that allows customers not only to track and reduce their carbon emissions, but to offset them via the ClimateTrade platform. The bank has plans to roll out the service for its UK customers in the coming months.
ClimateTrade’s API can be integrated into any banking application or website to present users with a summary of their emissions, calculated according to their card and direct debit transactions. It then gives customers the option to offset this footprint directly from their account by contributing to sustainable projects worldwide. All projects offered by ClimateTrade are certified by internationally recognized standards like Verra, Gold Standard of the CDM, and aligned with the UN Sustainable Development Goals. Additionally, all transactions are fully traceable thanks to blockchain technology.
If you would like to know more about ClimateTrade’s solutions for the banking sector, get in touch with our experts.
