Global | Is It Economically Rational for Banks to Commit to Net-Zero?

Formal bank commitments to net-zero are facing challenges amid shifting policy perspectives. However, its economic rationale is very much alive for banks seeking (i) growth in green sectors, (ii) strategic alignment with regulatory changes and (iii) helping clients adapt through specialization.

Key points

• Key points:
• Regulatory Preparedness: A key driver for aligning with net-zero banking goals. Banks adjust portfolios to mitigate future regulatory costs, influenced by direct regulations (e.g., disclosure, stress tests) and indirect policies (e.g., carbon pricing).
• Green lending drives net-zero goals by unlocking long-term value despite short-term constraints. While tied to specialization, financing transition investments can align with decarbonization targets, even if immediate emissions reductions are limited.
• In conclusion, the economic literature on net zero banking highlights a complex but promising landscape for financial institutions. A deeper understanding is essential to optimize the role of banks in addressing climate change and achieving sustainable economic growth.

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