(Bloomberg) — Global banks are failing to meet their goals of limiting financing of activities that directly drive climate change, according to a new study from the World Resources Institute.

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The analysis, which focused on 25 of the world’s largest lenders, found that “not only are banks not on track to meet their net zero targets, but many of their pledges are less ambitious than they appear at first glance.”

“Despite progress, many banks have no or weak targets in key sectors,” said Anderson Lee and Amanda Carter, the two WRI researchers who authored the report released Wednesday. In addition, “existing targets are not designed to limit warming to 1.5 degrees,” they said.

The findings come at a time when the financial industry is becoming increasingly vocal in defending a business model it believes should be guided by customer preferences and profit-making – goals that bankers say are not always compatible with climate action. This stance feeds into an increasingly tense political debate, with Republicans in the US threatening to sue companies that appear to put climate policy ahead of profits. The development has infuriated climate activists, who responded by trying to disrupt Wall Street through large-scale protests.

“We found that, on average, banks across most sectors have not aligned their emissions reduction efforts with 1.5 degree targets and do not expect to do so by 2030,” Lee and Carter wrote. “In other words, banks are not even planning to reduce their emissions as much as necessary – let alone actually implementing or tracking them.”

The WRI, which has been monitoring sustainable financial reporting since 2019, cites examples of banks failing to meet their targets, including the automotive sector, where reported portfolio emissions in 2022 were on average 28% higher than they should have been to meet the goal of limiting global warming to 1.5°C. Course corrections are also becoming increasingly difficult, with WRI’s findings showing that reported portfolio emissions will be three times higher than the benchmark by 2030.

The study also shows that most of the banks analyzed still do not include aspects such as corporate financing or advisory services in their carbon targets or set the thresholds for restrictions too high to have a significant impact.

“The result is that the phase-out policy is not comprehensive and many companies and activities that benefit from coal are not affected,” write Lee and Carter.

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The WRI report also warns against taking banks’ figures or announcements on climate targets “at face value.” Details that require closer scrutiny include the timeline for fossil fuel phase-out policies and whether capital market activities will be included, write Lee and Carter.

Without such details, it is not possible to assess whether a bank’s commitment “can be considered high quality and credible,” they wrote.

The researchers tracked the portfolio emissions that banks reported from their activities in six key sectors – oil and gas, power, automotive, aviation, cement and steel – between 2019 and 2022, as well as their emissions reduction targets for 2030. They then compared their progress with decarbonization pathways that would limit global warming to 1.5 degrees Celsius. The banks studied included JPMorgan Chase & Co., Mitsubishi UFJ Financial Group Inc., Industrial and Commercial Bank of China Ltd. and BNP Paribas SA.

The financial industry has repeatedly called for more government support to help banks and investors align their business with climate-friendly goals. But Lee and Carter point out that some of these banks support lobby groups that actively obstruct climate-friendly legislation.

“It is inconsistent for banks to call for climate-friendly policies while supporting industry associations that oppose them,” they write. “This is the case with some banks, particularly in the US.” While there is evidence that banks have begun to review their industry associations’ alignment with net zero, “more work is needed to ensure full alignment,” they said.

The International Energy Agency estimates that the world will need to invest about $4 trillion annually by 2030 to generate the amount of clean energy needed to achieve the necessary emissions reductions. For the energy sector alone, Lee and Carter say, the IEA needs to invest ten times as much in clean energy as in fossil fuels. The 10:1 target is currently far from reality, as the banks examined in the WRI study invest on average only 1.3 times as much in green finance as in fossil fuels.

“The backlash from advocacy groups and political forces in the United States that oppose sustainability efforts has led some banks to at least publicly backtrack on some of their climate commitments,” Carter and Lee said. “Banks must turn around and double down on their net-zero commitments – not only to meet their own climate goals, but also to capitalize on the new business opportunities associated with the climate transition.”

“A move towards sustainable finance can also protect banks from growing climate-related financial risks,” they said.

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