Banks Made Big Climate Promises. A New Study Doubts They Work.

Two and half years ago, bankers and investors attended the United Nations climate summit in Glasgow, an annual event normally dominated by activists and policymakers. It was considered a milestone as the financial sector agreed to put its might into tackling climate change.

Hundreds of banks, insurers and asset managers vowed to plow $130 trillion in capital into reducing carbon emissions and financing the energy transition as they introduced the Glasgow Financial Alliance for Net Zero. But a recent study, published by the European Central Bank, disputed the effectiveness of those promises.

“Our results cast doubt on the efficacy of voluntary climate commitments for reducing financed emissions, whether through divestment or engagement,” wrote economists from the central bank, the Massachusetts Institute of Technology and Columbia Business School who analyzed lending by European banks that had signed on to the Net-Zero Banking Alliance, the banking group of the Glasgow initiative.

The researchers found that since 2018 the banks had reduced lending 20 percent to sectors they had targeted in their climate goals, such as oil and gas and transport. That seems like progress, but the researchers argued it was not sufficient because the decline was the same for banks that had not made the same commitment.

“It’s not OK for the net-zero bank to act exactly like the non-net-zero bank, because we need that to scale up financing,” said Parinitha Sastry, an assistant professor of finance at Columbia Business School and one of the paper’s authors. “We want there to be a behavioral change.”

Expectations for banks from policymakers and climate activists are high. Every year trillions of dollars need to be invested in clean energy if the world is to reach net-zero carbon emissions by 2050, according to the International Energy Agency. Most of that cost will need to be financed privately, and banks are the key facilitators in those deals.