So far, transition risk and banks' climate policies have been assessed with backwards-looking metrics, such as financed emissions. This work aims to strengthen the still scarce knowledge of forward-looking metrics, such as decarbonization pledges. The analysis uses a rich dataset on the climate targets of major euro-area banks, drawn from different sources, combined with information on the financial features of intermediaries and their lending policies.
Decarbonization targets are extremely heterogeneous among banks in terms of time horizons, scope, ambition and reference indicators. Banks’ commitments have limited and time-delayed effects on credit policies towards carbon-intensive sectors. The euro-area banking system is not yet aligned with the Paris Agreement targets, reflecting the limited progress of financed companies towards the climate transition.
