Banking round-up: Deutsche, HSBC and Citi tighten policies, set new targets

Deutsche Bank has tightened its policy on thermal coal as it revealed there were large drops in financed emissions and financing for the oil and gas sector by the end of 2022.

The bank cut the Scope 1 and 2 footprint of its corporate loan book by around 5 percent in 2022, with reductions achieved in all sectors with net-zero targets and a steep decline of 28.9 percent in Scope 3 financed emissions in the oil and gas sector. In real terms, outstanding loans to the sector fell by more than 20 percent across the year to €6.5 billion.

The bank also announced a stricter approach to its thermal coal clients. Any new clients will be required to have “credible diversification plans”, with existing clients required to introduce them by 2025. State-owned enterprises in countries with a Just Energy Transition Partnership will be allowed to align phase-out trajectories to country commitments under the partnership.

Deutsche Bank’s current loan book to thermal coal companies stands at €231 million.

Having updated its coal policy, the bank will now look to amend its oil and gas policy. It has also introduced a target for client net-zero commitments. Ninety percent of high-emitting clients in the most carbon-intensive sectors will be expected to have a target by 2026, up from the current figure of around half.

Finally, net-zero pathways will be published for four new high-emitting sectors in 2023, joining existing pathways for upstream oil and gas, power generation, steel and the automotive sector.

Christian Sewing, Deutsche’s CEO, said that while the bank was “convinced that parting with a client after a transition dialogue can only ever be a last resort”, it was nonetheless prepared to ditch clients where it saw no willingness to embark on a credible transition.

Deutsche was joined on Thursday by Citi, which introduced 2030 emissions targets for thermal coal, steel, car manufacturing and commercial real estate in its annual TCFD report.

The bank set an absolute reduction target for its thermal coal lending, looking to reduce it by 90 percent against a 2021 baseline, while the other three sectors are subject to intensity targets.

The report received a lukewarm review from the Sierra Club, which noted that Citi was the only major US bank to adopt an absolute emissions target for thermal coal and called on other banks to follow suit. However, it criticised a lack of detail on how the bank engages with its clients and the escalation process.

HSBC also set a series of sector targets last week, committing to slash financed emissions from cement, air transport, automotive transport, and iron, steel and aluminium by 2030. The most ambitious target is in the automotive transport sector, where the bank is looking to cut emissions intensity by almost two-thirds.

In other banking news, Barclays and Commerzbank have released initial reactions to the EU Green Bond Standard following the provisional agreement on Tuesday.

In its research note, Barclays said that grandfathering provisions may deter the issuance of very long-dated green bonds with the EU label. If taxonomy criteria relevant to a bond changes during its lifetime, the issuer must apply amended criteria within seven years or risk losing the label.

Barclays analysts said this provision “may deter issuers from issuing very long-dated EU GBS bonds over fears that they may be required to make reallocations many years after issuance”. They noted, however, that only 17 percent of euro-denominated index-eligible green bonds have a tenor of more than 10 years, falling to 2 percent for those with more than 15 years.

The voluntary disclosures included with the standard will create three types of green bonds, with those bonds that neither disclose against the voluntary standards nor have the EU green bond label “possibly being viewed least favourably by the market over time”.

This was echoed by Commerzbank. In a note, analysts said the German lender viewed the compromise as a positive development, and that the “inherent flexibility should lead to a fairly widespread adoption of the standard”, with the possibility of the voluntary reporting standards becoming “a quasi-standard for all ESG-related bonds”.

However, they added that a sizeable share of the green bond market will likely remain outside the standard initially. Initial approximations show that almost half of existing issuance by SSA issuers could fail to hit the 85 percent threshold for taxonomy alignment.