Introduction

This briefing analyses 243 sectoral decarbonisation targets from 30 members of the UN-Convened Net-Zero Banking Alliance (NZBA). It focuses on the effectiveness of these targets in aligning financial activities with 1.5°C climate goals. Most interim targets are set for 2030 and cover Scope 3 emissions from banks’ lending and investment activities. Sectoral targets, which focus on high-emission sectors like oil and gas, power, and transport, have largely replaced policy-based measures. However, there are widespread issues with target design, coverage, transparency, and effectiveness.

Target setting standards, guidelines and regulations

NZBA members are required to set sectoral targets for major carbon-intensive sectors. The updated 2024 guidelines require inclusion of capital markets activities, though they allow banks to combine facilitated and financed emissions using a 33% weighting factor for facilitated emissions. This reduces comparability and underrepresents capital market impacts. PCAF’s methodologies underpin most bank targets and use attribution factors based on company value (EVIC), which introduces volatility and undermines the reliability of financed emissions data. Some banks have met or exceeded targets due to changes in market value rather than real emission reductions. Emerging regulations in the EU and other jurisdictions are pushing for more robust disclosures and target alignment with 1.5°C, potentially correcting for voluntary frameworks’ weaknesses.

Key weaknesses in bank decarbonisation targets

• Inadequate target types: Most banks use target types that are inadequate for driving real-world emissions reductions. Financed and facilitated emissions targets, which use attribution factors, are vulnerable to corporate value fluctuations. Half the targets analysed use weighted average physical intensity (WAPI), a more robust method for non-fossil sectors. Only 11 banks have credit exposure targets for fossil fuels, and none include capital markets volumes.
• Partial coverage of financing activities and emission sources: Most targets focus on lending, with limited inclusion of capital markets activities. Scope 3 emissions, critical for fossil fuel sectors, are often missing for other sectors. Only about one-fifth of targets cover all three scopes. Methane is frequently excluded, despite its importance.
• Failure to disaggregate targets by scopes, gases, financing types and other parameters: For instance, JPMorgan Chase’s “Energy Mix” target combines oil, gas, and renewables, allowing increased fossil financing while still appearing to meet goals. Only a third of banks explicitly reject the use of offsets, and most allow them, undermining target integrity.
• Target ambition is inconsistent: Twenty-eight targets use a range approach, where only the upper bound may be 1.5°C-aligned. The lower bound typically reflects 2°C pathways, allowing weaker action. Many targets are based on outdated or non-aligned scenarios, such as IEA SDS or B2DS.
• Emissions data quality is poor: Only 17 banks disclose PCAF data quality scores, and most targets depend on self-reported or estimated data. Banks also rarely specify which greenhouse gases are included or the Global Warming Potential values used. Transparency on target design, scope, formulas, and progress reporting is limited across most banks.

Robust sectoral decarbonisation target types

Four target types are recommended:

• Sectoral portfolio financing volume (SPFV), which cuts lending and capital markets exposure to fossil fuel supply
• Weighted average physical intensity (WAPI), applicable to high fossil fuel demand sectors like power and steel
• Absolute sectoral portfolio emissions (ASPE), which track total emissions of companies in a portfolio
• Sectoral portfolio coverage (SPC), which measures the share of clients with robust 1.5°C-aligned transition plans.

SPFV targets are most effective for fossil fuel supply sectors. Eleven banks have such targets, mainly covering coal, with a few addressing oil and gas. However, none address capital market financing volumes. WAPI targets, used in about half of all targets, are suitable for industrial sectors but should be benchmarked to 1.5°C pathways.

ASPE targets are not yet adopted but would provide a more accurate view of real-world emissions. SPC targets are rarely used by banks, although they are promoted by investor initiatives. Capex alignment with 1.5°C is identified as a critical but underused indicator for target setting.

To be effective, robust targets must avoid financial attribution, ensure full coverage, disaggregate by scopes and gases, exclude offsets, use updated scenarios, and be transparently reported. Regulatory oversight is crucial to enforce these standards and prevent banks from diluting targets.