UK Anti-Greenwashing Rules Proposed, RBC & Deutsche Bank’s Emissions Targets, and More

October 28, 2022

The top five climate risk stories this week.

Climate finance alliance loosens ties with UN net-zero campaign

The Glasgow Financial Alliance for Net Zero (GFANZ) says its members do not have to follow strict fossil fuel policies laid out by the United Nations-backed Race to Zero (RtZ) campaign.

In a progress report released Thursday, GFANZ says that while its constituent alliances “will take note of the advice and guidance” of RtZ and other UN initiatives, each retains “sole responsibility” for managing and amending its governance frameworks and membership criteria.

This contradicts rules set out at GFANZ’s launch in April 2021, which stated that all the associated alliances “must be accredited by the UN Race to Zero campaign” and required member institutions to set science-aligned decarbonization targets “in line with Race to Zero’s criteria.”

The GFANZ-RtZ relationship plunged into turmoil earlier this year when the latter introduced updated membership criteria that explicitly require organizations to “phase down and out all unabated fossil fuels.” For financial institutions, this means limiting “the development, financing, and facilitation of new fossil fuel assets.” Following the RtZ update, the Financial Times reported that US banks — including JP Morgan, Bank of America, and Morgan Stanley — were considering walking away from the alliance out of fear they could be sued by shareholders and state governments if they adopted the fossil fuel criteria.

GFANZ’s recasting of its link with RtZ follows the release of an open letter from the chair of the Net-Zero Banking Alliance (NZBA), one of GFANZ’s constituent groups, last week. This said that the UN-backed campaign “does not have the ability to impose requirements” on the NZBA or its members and that the RtZ’s updated criteria would not automatically change the banking alliance’s own guidelines.

GFANZ currently has over 550 members across six constituent alliances, up from 160 last April. The progress report states that 250 decarbonization targets have been set by member institutions, and that 53 banks have done so “using science based 1.5 degrees scenarios with no or low overshoot.”

The progress report also affirms GFANZ’s support of the Climate Data Steering Committee, an initiative set up by France’s President Macron to design a Net-Zero Data Public Utility intended to close climate data gaps and bring transparency to organizations’ net-zero transition plans.

Anti-greenwashing rules proposed by UK regulator 

The UK’s Financial Conduct Authority (FCA) plans to stop investment firms from making fake sustainability claims to sell products. 

In a bundle of draft rules released Tuesday, the FCA proposes to limit how ‘ESG’, ‘green’, and ‘sustainable’ labels are used to market funds and other investments. It also sketches out a new disclosure regime it hopes will help investors better understand what makes a given product sustainable.

Climate-friendly and sustainable products have exploded in popularity in recent years. The FCA says that UK-based responsible investment funds grew 64% over 2021 to £79bn (USD$91.5bn). However, the regulator says one factor behind this surge is the broad scope of ‘ESG’ and related terms, which allows firms to make misleading or exaggerated claims about how their products advance sustainability goals. 

“Greenwashing misleads consumers and erodes trust in all ESG products,” said Sacha Sadan, the FCA’s ESG director. “Consumers must be confident when products claim to be sustainable that they actually are. Our proposed rules will help consumers and firms build trust in this sector.”

Under the draft rules, sustainable investment products would be organized into one of three categories: ‘sustainable focus’, ‘sustainable improvers’, and ‘sustainable impact’. ‘Sustainable focus’ products are those invested in assets that are environmentally and/or socially sustainable; ‘sustainable improvers’ are those that aim to bolster the sustainability of assets over time; and ‘sustainable impact’ products are those that invest in solutions to environmental or social problems. The FCA says these labels can only be applied to products that meet high, objective standards of quality and integrity.  An additional anti-greenwashing rule in the proposal would curb the use of ESG-related terms in the names and marketing materials of products that don’t belong to one of these three sustainable investment categories.

The FCA’s proposed disclosure rules are intended to inform investors of a product’s sustainability objective and its progress toward it. The FCA also wants more detailed information to be provided to all investors who want it, including periodic ‘sustainability product-level reports’  and ‘sustainability entity reports’, which would explain how a given product and the firm selling it are making progress on sustainability issues, respectively.

Distributors of sustainable products are covered by the FCA proposal, too. The regulator wants distributors to clearly display sustainable investment labels on product webpages, apps, and other digital mediums and to not use these labels for products that haven’t earned them.

The proposal is open for public consultation until January 25, 2023.

RBC, Deutsche Bank debut portfolio emissions targets

Two of the world’s largest banks unveiled plans to decarbonize their lending and investment portfolios.

On Wednesday, RBC — Canada’s largest lender by net revenue — published 2030 emissions reduction targets for its oil and gas, power generation, and automotive portfolios. The bank plans to reduce the physical emissions intensity of these holdings rather than the absolute amount of greenhouse gases it finances. 

For oil and gas exposures, RBC aims to cut Scope 1 emissions intensity by 35% and Scope 3 intensity by 11-27%. For power generation, it’s eyeing a 54% Scope 1 intensity cut, and for automotives a 47% reduction in Scope 1, 2, and 3. Each of these targets is anchored to a 2019 emissions baseline. For the oil and gas targets, RBC is using Canada’s Emissions Reduction Plan scenario as a benchmark. For the other two portfolios, it’s using the International Energy Agency’s Net Zero Emissions (IEA NZE) scenario.

RBC is the last of the ‘Big Five’ Canadian banks to release portfolio targets. Most of its peers have also set oil and gas targets for physical emissions intensity. However, Scotiabank, CIBC, and BMO benchmark their targets to the IEA NZE scenario. TD Bank is an outlier in having set a financed emissions target, which means it plans to reduce the carbon intensity linked to each dollar of oil and gas financing it provides, rather than the emissions intensity of each unit of energy these activities produce.

On October 21, Deutsche Bank disclosed 2030 and 2050 net-zero aligned targets for four portfolios: oil and gas, power generation, automotive, and steel. For oil and gas, the German lender plans to cut Scope 3 upstream financed emissions by 23% by 2030 and 90% by 2050, expressed in millions of tonnes of carbon dioxide (CO2). This is an absolute emissions target rather than an emissions intensity target like TD Bank’s. For power generation, it aims to cut Scope 1 physical emissions intensity by 69% by 2030 and 100% by 2050. For the automotive portfolio, it wants a 59% cut in Scope 3 tailpipe emissions intensity by 2030 and a 100% reduction by 2050. Finally, for the steel portfolio it’s targeting a 33% cut in Scope 1 and 2 physical emissions intensity by 2030 and a 90% drop by 2050. All of Deutsche Bank’s targets are benchmarked to the IEA NZE scenario.

Reclaim Finance, a European climate nonprofit, welcomed Deutsche Bank’s targets but says its oil and gas plan doesn’t align with a 1.5°C warming limit. Specifically, it says the 23% emissions reduction target for this portfolio is short of the 28% cut implied by the IEA NZE and the 25.5% reduction stipulated by the One Earth Climate Model, a tool used by members of the Net-Zero Asset Owners Alliance to set decarbonization targets.

“If Deutsche Bank is serious about its support for the phase-out of fossil fuels, it needs to develop robust policies that ensure that its clients stop developing new fossil projects and replace existing fossil infrastructure with clean energy sources,” a statement by Reclaim Finance said. “It also needs to ensure that its decarbonization targets are comprehensive in terms of covering lending and underwriting and all high-emitting sectors including the coal industry, and are robust in terms of being based on absolute emissions and not emissions intensity.”

BNP Paribas faces climate lawsuit over fossil fuel financing

French lender BNP Paribas must take immediate steps to stop harming the climate through its financing of oil and gas expansion or risk being sued by a coalition of climate nonprofits.

On Wednesday, Oxfam France, Friends of the Earth France, and Notre Affaire à Tous sent a letter to BNP Paribas’ chief executive officer threatening legal action under France’s law on the corporate duty of vigilance. This 2017 piece of legislation obliges certain French companies, including banks, to “identify and prevent risks of serious human rights, health and safety, and environmental violations caused by their own activities and those of their subsidiaries, as well as those of their main suppliers and subcontractors, both in France and abroad,” the nonprofits explain.

BNP Paribas is accused by the nonprofits of failing to abide by this law through its ongoing fossil fuel financing. If it does not meet the groups’ demands within three months, they will take the case to court, in what would be the first climate lawsuit in France aimed at a private financial institution.

The nonprofits’ demands of BNP Paribas include an “immediate halt” to all financing toward fossil fuel expanders, the adoption of a phaseout plan for the oil and gas sector “in line with scientific requirements for a reduction in fossil fuel production by 2030” and the implementation of measures to cut CO2 and methane emissions by 45% by 2030.

The nonprofits cite data showing that BNP Paribas is first among European banks when it comes to financing fossil fuel expansion, having provided USD$55bn between 2016 and 2021.

Climate risk tops poll of experts’ concerns

Climate change is the number one emerging risk facing the world, a survey of 4,500 risk professionals conducted by French insurer Axa shows.

Climate risk also tops the expert rankings in every geography for the first time in the survey’s nine-year history. A companion poll of 20,000 members of the general public put climate risk in the top spot, too.

The findings, featured in Axa’s latest Future Risks Report, show that climate concerns are yet to slip down the risk agenda despite resurgent geopolitical challenges, like the Russia-Ukraine war. Risk experts identify geopolitical instability and cyber security risks as the second and third top risks, respectively, while the public ranked pandemics and infectious diseases in the second spot and geopolitical instability in third.

Asked in the survey whether they thought public authorities are well prepared to handle climate risks, only 14% of risk experts say yes. One-fifth say they think the private sector is well prepared.