The Banking Executive Magazine - February 2023 Issue

Transition To Net-Zero recommendation for Arab banks in their transition to net zero. WHAT IS NET ZERO? Net zero means that the total green- house gas (GHG) emissions of an or- ganisation, a city or a country, must be equal to or less than the emissions it removes from the environment. While carbon neutral and net zero have similar meanings, there are small but important differences be- tween them. Net zero refers to all greenhouse gases (carbon dioxide, methane, nitrous oxide, etc.), whereas carbon neutral only refers to carbon dioxide. For example, a com- pany is carbon neutral if the amount of carbon dioxide it emits is the same as or less than the amount of carbon it removes from the atmosphere. Climate change is the biggest threat facing humanity. The rate at which we are emitting greenhouse gases is unsustainable and could be irre- versible if a global action is not taken immediately. If global temperatures continue to rise, the world will experience ex- treme weather conditions and biodi- versity loss. To stop global warming, net zero must be achieved at a global level. It must also be permanent, meaning that any greenhouse gases removed from the atmosphere are not re-released. While individual action is crucial, businesses and governments must drive action to help society transition to net zero. IMPORTANT ROLE FOR BANKS Today it is more and more pressing to tackle climate change. The world must achieve net zero greenhouse gases (GHG) emissions. To achieve net zero, all sectors of the real econ- omy will need to follow science- based transition pathways to reduce their GHG emissions. This will re- quire significant investment. As providers and facilitators of financ- ing, banks have an opportunity to play a pivotal role in supporting the transition, which will need to be en- abled by supportive policy condi- tions. In order for banks to develop a robust approach for measuring and setting targets for emissions within their portfolios, they need the best avail- able economic and technological knowledge to achieve the transition of the real economy to net zero. Net zero strategies must be laid down and translated into action towards closing the transition finance gap, and active collaboration with clients and policymakers to enable a net zero real economy. Banks must also disclose progress to all stakeholders. THE NEED FOR A GLOBAL WORLD ACTION The transition of the real economy to net zero is not an individual or a sin- gle institution action, it needs a global world action to consolidate ef- forts and put joint targets and mile- stones. The industry-led, United Nations UN-convened Net-Zero Banking Al- liance NZBA brings together a global group of banks, currently represent- ing over 40% of global banking as- sets, which are committed to aligning their lending and investment portfolios with net-zero emissions by 2050. NZBA is the flagship climate initia- tive under the Principles for Respon- sible Banking to accelerate science-based climate target setting and develop common practice. NZBA is open to all banks globally. The Alliance reinforces, accelerates and supports the implementation of decarbonisation strategies, providing an internationally coherent frame- work and guidelines in which to op- erate, supported by peer-learning from pioneering banks. It recognises the vital role of banks in supporting the global transition of the real econ- omy to net-zero emissions. NET ZERO REGULATIONS The Net-Zero Banking Alliance have pledged to reach net-zero carbon emissions by 2050. Consumers and governments are putting increasing pressure on financial institutions to take climate action and drive the pursuit to net zero. Consumers are demanding banks to stop investing in assets linked to fossil fuels and defor- estation. And many clients are won- dreing how sustainable is their bank. Regulation around sustainability re- porting has also gained momentum. The mandatory ESG (Environmental, Social, and Governance) reporting ISSUE 170 FEBRUARY 2023 the BANKING EXECUTIVE 31