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VoxEU Column Climate Change Financial Markets

Business as usual: Bank net zero commitments, lending, and engagement

In recent years, banks have increasingly embraced net zero commitments as part of their strategy to address climate change. This column finds limited evidence to suggest that net zero commitments lead to significant reductions in financed emissions or substantial increases in financing for sustainable activities. It raises questions about the effectiveness of voluntary private-sector initiatives in driving decarbonisation efforts. There is a need to enhance the credibility and accountability of net zero commitments, including greater data availability and transparency, and it underscores the importance of complementary regulatory measures to accelerate the transition to a sustainable economy.

Banks play a central role in capital allocation, so they are key to financing the green transition. Banks have made ambitious public commitments to reduce financed emissions and increase financing for sustainable activities. Most prominently, more than 138 banks, representing over 40% of global banking assets, have made explicit net zero commitments through the Net Zero Banking Alliance (NZBA), one of the most stringent voluntary climate initiatives.

These ‘net zero banks’ have made a commitment to “align lending and investment portfolios with net-zero emissions by 2050” with “intermediate targets for 2030 or sooner”. These targets must be set within 18 months of joining the alliance, and they specify the sectors that each lender has targeted as high priority for decarbonisation. In addition to announcing sectoral targets for reducing financed emissions, net zero banks also make outright pledges to scale up sustainable finance.

The announcement of bank net zero commitments has triggered contrasting reactions. Many laud the NZBA initiative as evidence that banks are beginning to seriously incorporate climate change concerns in their lending and investment decisions, suggesting that banks can help to bridge the large financing gap for the net-zero transition. In the US, some even go further, taking lender divestment from fossil fuels as a given and holding net zero banks responsible for divesting. Others, however, have pointed out that these net zero commitments are voluntary and could simply reflect greenwashing behaviour.

For the banking sector, a small recent literature seeks to quantify whether lenders have divested from polluting sectors. The evidence is mixed. Some papers find evidence of lender divestment from firms in the coal mining sector (Green and Vallee 2022). There is also some evidence that lenders charge relatively higher interest rates to polluting firms (Altavilla et al. 2023). However, other studies find no evidence of divestment from firms with high carbon emissions (Bruno and Lombini 2023, Giannetti et al. 2023).


In a recent paper (Sastry et al. 2024), we conduct the first large-scale causal evaluation of the impact of banks' net zero commitments on their lending and on the climate impact of borrowing firms. We use two administrative data sources covering European banks that provide a comprehensive view of these banks' lending portfolios. The first is a bank-firm credit registry with granular information on the near-universe of lending within the euro area. We match this credit registry data to bank-level data on net zero pledges and borrower-level information on decarbonisation targets and carbon emissions. The second is banks’ global lending by sector and country; this global coverage is important because most lending by European banks to emissions-intensive sectors—such as coal mining, oil & gas, and other forms of mining—occurs to firms outside of the euro area.

We organise our empirical analysis around three hypotheses for how banks can impact financed emissions. Net zero banks can decarbonise their portfolios in two ways: divestment and engagement. Banks can divest from polluting firms and reallocate capital to less emission-intensive firms. Alternatively, net-zero banks can continue to lend to polluting firms, but engage by pushing them to reduce their emissions. For example, banks can encourage polluting firms to set climate targets and invest in cleaner technologies. If net zero banks neither divest nor engage with polluting firms, then net-zero commitments have a limited impact on financed emissions and instead represent greenwashing by banks.

We obtain the following findings: First, we reject the divestment hypothesis. Net zero banks do not divest from polluting sectors (Figure 1), nor do they scale up project financing for renewable power projects (Figure 2).

Figure 1 Global lending to mining by Net Zero Banking Alliance (NZBA) and non-NZBA banks (lending share)

Figure 1 Global lending to mining by Net Zero Banking Alliance (NZBA) and non-NZBA banks (lending share)

Figure 2 Project finance loans to power generation

Figure 2 Project finance loans to power generation

Second, we reject the engagement hypothesis. Borrowing firms dependent on net zero banks are not likelier to set their own climate targets (Figure 3), nor do they reduce their verified emissions.

Figure 3 Number of borrowers with a Science Based Targets initiative (SBTi) target by Net Zero Banking Alliance

Figure 3 Number of borrowers with a Science Based Targets initiative (SBTi) target by Net Zero Banking Alliance

Pledges and policy

We conclude that net zero commitments do not lead to meaningful changes in bank behaviour. This evidence supports recent efforts by governments to improve the credibility and accountability of net zero commitments, including promoting data availability. More broadly, it suggests that voluntary private-sector initiatives may have little impact on decarbonisation.

Authors’ note: The views expressed in this column are those of the authors only. They do not necessarily represent the views of, or imply any responsibility for, the European Central Bank. We are very grateful to Nikolay Danov, Francesca Faella, Jan Jakob Krüger, and Christoph Oberthür for outstanding research assistance and very helpful discussions.


Altavilla, C, M Boucinha, M Pagano and A Polo (2023), “Climate risk, bank lending, and monetary policy”, VoxEU.org, 2 November.

Bruno, B and S Lombini (2023), “Climate transition risk and bank lending”, Journal of Financial Research 46(S1): S59-S106.

Giannetti, M, M Jasova, M Loumioti and C Mendicino (2023), “‘Glossy Green’ banks: The disconnect between environmental disclosures and lending activities”, CEPR Discussion Paper 18286.

Green, D and B Vallee (2022), “Can finance save the world? measurement and effects of coal divestment policies by banks”, Working Paper, 8 April.

Sastry, P, E Verner and D Marques-Ibanez (2024), “Business as usual: bank climate commitments, lending, and engagement”, European Central Bank Working Paper Series 2921.