Banks and Insurers Struggle to Turn Climate Pledges Into Results

JPMorgan Chase & Co., Allstate Corp. and many of their peers in the US financial services sector have made ambitious climate pledges amid heightened pressure. Poor long-term planning, varying definitions of what terms like “net zero” mean and inconsistent ways to measure progress, however, make it unclear how meaningful those goals are and whether firms are on track to meet them.

Fewer than 20% of financial institutions have made climate transition plans more than a year into the future, a recent survey indicates, and even the most aggressive pledge-takers have struggled to spell out their long-term commitments.

Allstate, for example, pledged in its most recent sustainability report to zero out direct emissions from its facilities and energy use—known as Scope 1 and 2 emissions—by 2030. The insurance giant has not, however, set a net zero goal for so-called Scope 3 emissions from its supply chain and consumers, which account for more than 85% of its total greenhouse gas emissions. “We’ll set a separate target for Scope 3 emissions by 2025,” Allstate said in its 2023 sustainability report.

Meanwhile, JPMorgan first set aggressive targets in 2021 for reducing emissions produced within the portfolio of companies the bank is financing—which fall under Scope 3 emissions. But emissions from its financing of companies in the oil and gas sector, for instance, decreased only 1% from 2019 to the end of 2022, putting the bank far behind its target of lowering that number 45% by 2030.

Allstate and JPMorgan’s commitments—and many others across the financial services sector—are a step toward the 2016 Paris Agreement, which requires nations to reach net zero for all emissions by 2050. Former President Trump withdrew from the Paris Agreement in 2017, but the Biden administration re-joined in 2021.

They come as investors have increasingly pressed public companies to prioritize their net zero targets, and protesters have assembled outside banks like Citigroup Inc. to oppose financial investments in oil and gas.

Representatives for Allstate and JPMorgan declined to comment.

Financial services is not the only sector struggling with net zero targets. Airlines have been hard-pressed to reduce emissions significantly given their limited options for sustainable fuel and more fuel-efficient planes. Technology companies also face challenges meeting their goals as the energy needs of artificial intelligence threaten to erase progress.

“These goals are wonderful if they are achieved,” Michael Gerrard, founder of the Sabin Center for Climate Change Law at Columbia University, said. “But they are worse than nothing if they are not backed by concrete plans for implementation, interim goals, and clear metrics.”

Goal Setting

Nearly 80% of the 197 global financial institution and investment firm leaders surveyed this year by Mayer Brown said their companies need to embrace sustainability. But firms are unlikely to implement long-term policies to do so without concrete guidance, Benja Faecks, a policy expert at Carbon Market Watch, said.

“There’s no oversight in what companies have to do,” Faecks said. “I think that’s an important thing to see. And one of the first things to ascertain is which sustainability metrics have to be included in and published by corporations.”

More than 675 financial institutions have joined the Glasgow Financial Alliance for Net Zero, which joins financial institutions with experts to help companies achieve net zero commitments. That’s out of an estimated 5 million financial services companies globally.

While America’s 10 largest banks have committed to achieving net zero by 2050, only half of midsize banks have announced emissions reduction targets, according to a study by Baringa Partners US. And just 18% hold “explicit” net zero targets.

Huntington Bancshares Inc., for example, just began calculating its Scope 3 emissions, reporting in its most recent ESG report that the bank had completed an initial assessment.

“In prior ESG reports, we have discussed our exploratory net zero roadmap, and we continue to make progress in defining our approach,” the report says.

The same is true for insurance agencies, according to Boston Consulting Group. The company says that while insurers might have set ambitious climate goals, many lack a transition plan: short-term business goals to help them achieve those lofty targets.

For example, American International Group, a finance and insurance corporation, committed to reaching net zero emissions across Scopes 1, 2 and 3 by 2050. But the firm has not yet published a climate transition plan.

“AIG has been diligently working to develop the appropriate infrastructure to continue operationalizing our net zero commitments,” AIG’s 2023 sustainability report says. “We believe the next critical milestone in this process is building a credible and effective transition plan.”

Companies creating these roadmaps need to consider whether their goals go far enough, said Nicole Burford, who leads the development of sustainability practices at Clean Energy Credit Union, formed in 2017 to fill a gap in the marketplace for a net zero credit option.

Customers care about about the emissions produced by the companies in firms’ portfolios as well as direct pollution, Burford said. Rulemaking could push financial services groups to consider those emissions, she said.

“I hear from members all the time they are passionate about the environment, and it makes them feel good that something they’re going to do anyway is having a positive impact,” Burford said. “Knowing you’re putting your money into clean energy is huge.”

Many in the insurance industry are focused on how to adapt their business models as more information about climate change becomes available, said Peter Ott, an actuary who serves on the climate change committee at the American Academy of Actuaries. But immediate weather events affecting the industry, for example, can push back issues like net zero plans.

“Climate change is a measurable and important issue that actuaries need to get a better understanding of,” Ott said. “We are just trying to keep ahead of all of these changing issues and figure out to what extent actuaries can adapt their risk qualification to these changes.”

Patchwork of Rules

One of the key obstacles to cementing goals is the lack of a universal structure for climate transitions or a common global standard for disclosing plans to investors and the public.

“This kind of absence of a single framework brings about this nervousness about being a leader,” said Tim Baines, a partner at Mayer Brown. “People are going to have to do things for the first time when they’re required to do so but until then, they’re nervous to be either setting themselves on a pedestal or demonstrating that they’re a little bit behind the curve.”

Some jurisdictions have taken steps toward creating a standard. In March, the US Securities and Exchange Commission adopted climate disclosure rules that require public companies to report climate-related goals and targets that are material to their business, along with their Scope 1 and 2 emissions. Those rules have been paused while the SEC defends them in court, however.

California’s emissions disclosure laws passed in late 2023 also require some companies to publish their plans to address climate-related risk, but they face litigation as well and Gov. Gavin Newsom (D) is aiming to delay their start date from 2026 to 2028.

Meanwhile, the European Union’s Corporate Sustainability Due Diligence Directive requires big EU companies and foreign companies with a sizeable operation in the EU to be in line with Paris Agreement goals.

The three-year-old International Sustainability Standards Board has also issued climate change and general sustainability reporting rules that will be mandatory for countries that choose to adopt them.

But neither the US rules, the EU directive or ISSB guidelines lay out a framework specific to climate transition plans.

The UK could be the best bet for developing a formal standard for transition plans, Baines said. It is poised to adopt rules as soon as this summer as part of its upcoming transition to the ISSB guidelines that would offer a roadmap for companies looking to develop and better tailor their climate transition plans, he said. AIG, for example, already says it plans to incorporate guidance from the UK’s Transition Plan Taskforce Disclosure Framework into its eventual plan.

Translating Plans Into Action

Drawing attention to climate change’s risks and the need for transition plans is a first step, Baines said.

The next is, “Do you know what your governance structure is, what your targets are?” he said. “Now finally, it’s what are you going to do as an individual business to transition? That requires a kind of longer-term view of the requirements.”

Firms that have already laid out a long-term climate strategy need appropriate guideposts to assess their progress as part of their transition plans, Gerrard said.

The Paris Agreement seeks a 45% emissions reduction by 2030, but companies need to set more frequent check-ins to ensure they’re on track and help prioritize climate pledges, Gerrard said.

“I’d say we need benchmarks every five years to allow for meaningful monitoring, and we need very clear definitions of just what the benchmarks mean,” Gerrard said. “We don’t have any of that yet.”