Banks’ climate commitments: a silver lining for climate action or just hot air? First evidence from the Swiss mortgage business

Abstract

Banks worldwide have pledged to achieve net-zero greenhouse gas emissions in their lending and investment portfolios by 2050, raising hopes that the finance industry is about to leverage its full power to limit global warming. However, net-zero implementation efforts in banking are nascent, and their likelihood of meeting reduction targets remains unclear. To clarify uncertainties surrounding the mitigation outcomes of such climate commitments, this study investigates net-zero target operationalization in Swiss mortgage portfolios through extensive consultation with stakeholders directly involved in their implementation. The findings show that although banks have measures to achieve net zero by 2050 at their disposal, implementation is prevented by banks’ institutional fears about experiencing market disadvantages should competitors fail to follow suit. Without regulatory interventions, the voluntary net-zero efforts of Swiss banks will be limited to measures with anticipated limited to negligible impacts on decarbonizing financed buildings that are insufficient to meet pledged climate targets. This scenario resonates beyond the Swiss context, and great caution is warranted concerning the expected impact of voluntary climate commitments by banks worldwide. Further research is required to determine the extent to which similar dynamics constrain impactful climate target operationalization across asset classes and countries.