Getting Down to Business: Enabling Action and Enhancing Credibility in Net-Zero Banking Using a Portfolio-Led Approach

Three years into the decisive decade for climate action, the urgency for delivering on climate commitments has never been clearer.

Financial institutions are increasingly recognizing the risks and opportunities of the net-zero transition, and many have set net-zero decarbonization targets. Robust and credible action must follow.

This report introduces a portfolio-led approach to enhance credibility and robustness of net-zero banking.

Designed to help banks translate their net-zero commitments into action, this approach can help bankers navigate increasing stakeholder expectations, an evolving landscape of net-zero guidelines, and complex organizational structures.

The portfolio-led approach promotes a holistic view of net-zero activities across a firm. It provides a four-pillar framework that firms can use to assess where — through sectors and geographies — and how — through asset classes and business units — they can best support the real-economy net-zero transition.

Most banks undertake a three-stage process to make progress toward net-zero targets, comprising (1) strategy design, (2) implementation, and (3) reporting. A portfolio-led approach can underpin these to help banks enable action and enhance credibility across each stage of the process and optimize for their individual traits and potential for influence, while also tailoring net-zero approaches to real-economy conditions and financing needs across sectors and geographies.

Importantly, the portfolio-led approach is compatible with existing net-zero frameworks — it can be used in conjunction with the Glasgow Financial Alliance for Net-Zero (GFANZ) guidance on transition plans, and it can complement Net-Zero Banking Alliance (NZBA) sectoral target-setting to further enable action and enhance credibility.

As banks around the world grapple with how to implement net-zero commitments, a portfolio-led approach can help banks tailor and prioritize their efforts across net-zero strategy design, implementation, and reporting to fit the institutional and real-economy context in a way that is credible and robust, satisfies stakeholder demands, and drives real-economy outcomes.