Global management consultancy group identifies “pioneer strategy” that could accelerate a banks net-zero transition

The world’s banks are accelerating on the carbon transition, but they face three major strategic challenges to reaching net zero emissions by 2050, according to new research from Bain & Company.

As financed emissions—those associated with an organisation’s lending or investment activity—represent at least 95 per cent of a bank’s overall carbon footprint, it is essential to prioritize granular measurement of these emissions along with a long-range strategy to capture value from the carbon transition.

Bain & Company’s new study reveals that many banks have the opportunity to build a more accurate baseline of emissions in their lending and other financed portfolios as there is a risk of over- or under-estimating financed emissions by up to double when using loan data that is not granular enough.

This critical but complex task of measuring financed emissions makes it challenging to understand where and when value will emerge in the carbon transition and which strategy is best for a bank to capitalise on it.

Bain & Company’s experts predict that banks that tackle these challenges head on—which Bain calls “pioneer banks”— will see profits grow by between 25 per cent and 30 per cent. In sharp contrast, banks that either delay or adopt a passive approach tied simply to following regulatory requirements will see profits eroded by between 10 per cent and 20 per cent. 

Pioneer banks will ensure they invest in high-calibre emissions tracking to help their clients transition and make smarter strategic decisions, actively steering their portfolios based on both financial indicators and carbon footprints. By moving quickly, pioneer banks will shift a much larger percentage of their portfolios to green assets—up to 85 per cent by 2050.

In turn, their cost of funding and risk will be far lower than those of slower-moving competitors, who will be increasingly penalised by markets and investors for higher exposure to traditional industries and projects. 

  “Banks have a pivotal role to play in limiting global warming to 1.5 degrees Celsius, and industry-wide initiatives, such as the Glasgow Financial Alliance for Net Zero, are critical,” said Camille Goossens, Bain & Company’s global lead for sustainability and responsibility in financial services.

“We see positive momentum on both commitments by 2050 and 2030 as well as on disclosures that are increasingly transparent and precise. However, this critical topic requires banks to invest in reliable granular data and to increasingly adopt longer-term adaptable strategic thinking.”

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