A Guide to the Net-Zero Banking Alliance for the Aviation Sector

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The Net-Zero Banking Alliance (NZBA), an industry-led coalition founded in April 2021, stands at the forefront of global banking’s commitment to ambitious climate action. Representing 41% of global banking assets, NZBA aims to transition the real economy to net-zero greenhouse gas emissions by 2050. This overview delves into NZBA’s significance, particularly in its role in driving decarbonization efforts in the aviation sector.

Our guide covers:

 

What is the Net-Zero Banking Alliance (NZBA)?

The Net-Zero Banking Alliance (NZBA) is an industry-led, UN-convened coalition of leading global banks committed to financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050.

Founded in April 2021, NZBA is a coalition of leading banks that currently represent 41% of global banking assets. Together these members are committed to bringing down the emissions from their lending and investment portfolios.

 

Who does the NZBA apply to?

The alliance is open to all banks globally and is the climate accelerator for UNEP FI’s Principles for Responsible Banking and the sector-specific alliance for banks under the Glasgow Financial Alliance for Net Zero (GFANZ).

Since its establishment in April 2021, the NZBA has more than tripled in number of member banks, encompassing 144 member banks from 44 countries. These member banks collectively represent US$74 trillion in assets, which accounts for 41% of global banking asset.

Banks can join the Net-Zero Banking Alliance by becoming a Signatory to the Principles for Responsible Banking and a UNEP FI member, or by directly joining the NZBA. The NZBA provides guidance and support for members to set and achieve credible science-based net-zero targets.

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What are the Main Objectives of NZBA?

The main objective of the Net-Zero Banking Alliance (NZBA) is to support its members in financing ambitious climate action to transition the real economy to net-zero greenhouse gas emissions by 2050.

Under NZBA participating financial institutions need to annually assess and disclose the alignment of emissions from their lending and investment portfolios with 1.5°C climate targets.

 

The NZBA priority sectors

The NZBA mandates its members to establish sector-level targets, concentrating on priority sectors to maximize impact on greenhouse gas (GHG) emissions reduction.

The NZBA’s Target Setting Protocol encompasses 14 key sectors, demonstrating a comprehensive strategy to address emissions within the banking and financial industry.

NZBA priority sectors include:

  • Agriculture
  • Aluminum
  • Cement
  • Coal
  • Commercial real estate
  • Residential real estate
  • Iron and steel
  • Oil and gas
  • Power generation
  • Transport, including aviation

The NZBA’s guidelines expect member banks to set targets based on absolute emissions and/or emissions intensity for these priority sectors.

 

 

Why is NZBA Important for the Aviation Sector?

The Net-Zero Banking Alliance (NZBA) is crucial for the aviation sector as it is committed to financing climate action and achieving science-based net-zero targets. Its framework supports members in aligning with industry efforts to reduce carbon footprints.

The NZBA’s emphasis on sector-specific targets, including aviation, ensures transparency through annual assessments. Serving as a climate accelerator and sector-specific alliance, it plays a significant role in driving decarbonization in the aviation sector, aligning with global initiatives like UNEP FI’s Principles for Responsible Banking and GFANZ. In essence, the NZBA is a crucial force in the aviation industry’s transition to a net-zero economy.

The partnership between the NZBA and the Center for Climate-Aligned Finance (CCAF) has further strengthened the NZBA’s impact on promoting climate-aligned finance and decarbonization efforts within the aviation sector. This collaboration has facilitated the development of robust methodological approaches to climate alignment, identification of gaps, and overcoming barriers.

 

How does the NZBA work?

The NZBA empowers members to achieve credible, science-based net-zero targets by offering a framework, guidance, and peer learning.

Prospective members commit to shared goals and practices through the Alliance’s Commitment Statement. Signatory banks pledge to transition operational and attributable GHG emissions to net-zero by 2050. Governed by a 12-member steering group, including Mark Carney, the NZBA is UN Race to Zero-accredited, contributing to GFANZ and Principles for Responsible Banking.

The alliance’s progress report highlights sectoral targets, showcasing dedication to decarbonization. The NZBA measures emissions reduction through Annual Assessment, Emissions Baseline, Sector-Based Targets, and Pathway Alignment, ensuring transparency and progress tracking.

  • Annual Assessment and Disclosure: Participating financial institutions are required to annually assess and disclose the degree to which the greenhouse gas emissions from aircraft, airlines, and lessors they finance are in line with 1.5°C climate targets. This annual assessment and disclosure process ensures transparency and accountability in tracking progress toward emissions reduction goals.
  • Emissions Baseline and Reporting: Banks establish an emissions baseline and annually measure and report the emissions profile of their lending portfolios and investment activities. This includes reporting on absolute emissions and emissions intensity in line with best practice and disclosing progress against a board-level reviewed transition strategy setting out proposed actions and climate-related sectoral policies. This robust approach to emissions measurement and reporting is essential for tracking progress and ensuring alignment with climate targets.
  • Sector-Based Emissions Reduction Targets: Member banks commit to developing sector-based 2030 emissions reduction targets for their most carbon-intensive sectors, including aviation. These targets cover some of the hardest-to-abate and most material sectors, and banks report on their progress against these targets in their annual climate reports. This reporting provides insights into the effectiveness of emissions reduction efforts within specific sectors, including aviation.
  • Pathway Alignment: Some banks have aligned their emissions reduction targets with specific pathways, such as the well below 2°C pathway, to ensure that their targets are consistent with the temperature goals of the Paris Agreement. This alignment with specific pathways provides a clear framework for measuring progress and ensuring that emissions reduction efforts are in line with global climate goals.

 

 

How to Report under NZBA?

Banks reporting under the Net-Zero Banking Alliance (NZBA) utilize methodologies such as PCAF and the Pegasus Guidelines to guide their measurement and disclosure of financed emissions. These methodologies provide step-by-step instructions for setting emission baselines and targets, measuring portfolio alignment, and annually disclosing emissions from financed activities, ensuring transparency and accountability.

Both PCAF and Pegasus prioritize the use of high-quality data to ensure accurate emissions reporting. PCAF incorporates a data quality scoring system, ranging from 5 (lowest) to 1 (highest), to assess the reliability of emissions data. This scoring system helps banks identify areas for improvement and prioritize efforts to enhance data quality over time.

Similarly, Pegasus has implemented measures to ensure the use of high-quality data. When primary source data from clients is unavailable, banks are encouraged to use Pegasus qualified third-party providers to guarantee the reliability and accuracy of NZBA emission reporting.

PACE is a Pegasus Qualified Data Provider

The Pegasus Guidelines for aviation help banks independently measure emissions intensity and climate alignment of portfolios compared to a 1.5 degrees C scenario. They are compatible with the NZBA guidelines.

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NZBA Members Committed to Decarbonising Aviation

There are several banks who have joined the NZBA are actively committed to reducing their carbon footprint in the aviation industry.

For example:

  • Lloyds Banking Group: Lloyds Banking Group became a founding member of the Net Zero Banking Alliance (NZBA) in April 2021. The group has committed to developing sector-based 2030 emissions reduction targets for its most carbon-intensive sectors, including aviation. Lloyds Banking Group’s targets cover some of the UK’s hardest-to-abate and most material sectors, including transportation, which encompasses aviation. The group’s commitment to reducing its carbon footprint in the aviation industry demonstrates its dedication to sustainability and responsible banking practices
  • Societe Generale: Societe Generale is one of the founding members of a climate-aligned finance framework to support aviation industry decarbonization, consistent with the UN-convened Net-Zero Banking Alliance (NZBA). The participating financial institutions, including Societe Generale, will annually assess and disclose the degree to which the greenhouse gas emissions from aircraft, airlines, and lessors that they finance are in line with 1.5°C climate targets. This commitment underscores Societe Generale’s active involvement in reducing its carbon footprint in the aviation industry and supporting the transition to a net-zero economy

 

 

Benefits of NZBA

Joining the Net-Zero Banking Alliance (NZBA) offers several benefits for member banks:

  1. Support for Setting and Achieving Net-Zero Targets: The NZBA’s framework, guidance, and peer learning opportunities support its members to design, set, and achieve credible science-based net-zero targets for 2030 or sooner. This assistance ensures that banks are equipped to align their lending and investment portfolios with net-zero emissions by 2050, in line with the 1.5°C temperature targets of the Paris Agreement.
  2. Access to Peer Learning and Best Practices: Member banks have access to peer learning opportunities and best practices from pioneering banks, providing valuable insights and strategies for transitioning to net-zero emissions. This collaborative environment fosters knowledge sharing and facilitates the implementation of decarbonisation strategies.
  3. Alignment with Global Climate Goals: Joining the NZBA demonstrates a bank’s commitment to financing ambitious climate action and supporting the global transition to net-zero greenhouse gas emissions by 2050. This alignment with global climate goals enhances a bank’s reputation and demonstrates its dedication to sustainability and responsible banking practices.
  4. Participation in a Global Coalition: By becoming a member of the NZBA, banks join a global coalition of leading financial institutions committed to driving decarbonisation efforts and supporting the transition to a net-zero global economy. This participation allows banks to contribute to a collective effort to address climate change and environmental sustainability.
  5. Access to International Framework and Guidelines: Member banks operate within an internationally coherent framework and guidelines provided by the NZBA, which supports them in aligning their operations with net-zero emissions and implementing effective decarbonization strategies. This framework ensures that banks have the necessary support and guidance to navigate the complexities of transitioning to net-zero emissions

 

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 NZBA Timeline

  • April 2021: NBZA was established.
    Since its inception, the alliance has experienced rapid growth, with its membership more than tripling in number. The NZBA now encompasses 144 member banks from 44 countries. These member banks collectively represent US$74 trillion in assets, which accounts for 41% of global banking asset
  • October 2022: NBZA published the Transition Finance guide.
    The guide offers essential guidance for banks and financial institutions to assess opportunities, allocate effort, and advocate for supportive policies regarding transition finance for the real economy.
  • November 2022: NBZA published their first progress report.
  • December 2023: NZBA published their 2023 progress report.
    The update highlights the growth of the alliance and notes that over two-thirds of NZBA banks have now set targets aligned with 1.5°C scenarios.

These progress reports show the significant progress made by the alliance and its members in driving the transition to a net-zero economy.

 

Conclusion:

The NZBA is a pivotal force in global banking, uniting leading institutions in the pursuit of ambitious climate action. Through its framework, guidance, and collaborative approach, the alliance not only supports its members in achieving net-zero targets but also plays a crucial role in driving the transition to a sustainable, net-zero economy on a global scale.

The Net-Zero Banking Alliance (NZBA), an industry-led coalition founded in April 2021, stands at the forefront of global banking’s commitment to ambitious climate action. Representing 41% of global banking assets, NZBA aims to transition the real economy to net-zero greenhouse gas emissions by 2050. This overview delves into NZBA’s significance, particularly in its role in driving decarbonization efforts in the aviation sector.

FAQs

What’s the relationship between NZBA and GFANZ?

The Net-Zero Banking Alliance (NZBA) is a member of the Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition focused on achieving a net-zero economy. While GFANZ doesn’t impose additional obligations on NZBA members, it requires reporting on progress and offers collaboration opportunities. The GFANZ Principals Group includes some NZBA members, but GFANZ lacks decision-making authority over the NZBA. With over 650 firms in eight sector-specific alliances, including the NZBA, GFANZ unites the global financial sector to transition to a resilient net-zero economy. The NZBA, representing the banking sector, emphasizes banks’ crucial role in achieving global net-zero emissions and provides a coherent framework, guidelines, and peer learning for decarbonization. In essence, NZBA’s GFANZ membership fosters collaboration, reporting, and participation in collective efforts toward a net-zero economy.

what are the eight sector-specific alliances that make up GFANZ?

All NZBA member banks commit to the guidelines outlined in the Commitment Statement and Guidelines for Climate Target Setting. Within 18 months of joining, they pledge to set targets for 2030 and 2050, with intermediary targets to ensure progress toward achieving net-zero emissions by 2050.

The NZBA provides a framework, guidance, and peer learning opportunities to help members design, set, and achieve science-based net-zero targets for 2030 or sooner. The Alliance offers a checklist and supporting notes to ensure banks’ intermediate targets align with guidelines, emphasizing its commitment to financing climate action for a transition to a net-zero economy by 2050.

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