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How political and economic volatility is impacting net-zero commitments

Current economic and political shocks are making it harder for banks to meet their climate commitments. New thinking will be key to staying on course for net zero.

In brief

  • COVID-19 and the war in Ukraine are disrupting European banks’ operations and slowing their transition agendas.
  • Banks remain fully committed to net zero but face growing practical hurdles — as well as heightening expectations for crisis recovery and economic support.
  • The road to net zero looks increasingly bumpy. Innovation, collaboration and engagement will be key to staying on target.

The world has changed hugely since many European banks made their net-zero commitments. Institutions continue to commit to setting climate action goals, improving their climate-related disclosures and developing industry-wide initiatives. However, the operating environment is being transformed by self-reinforcing economic and political volatility, triggered by the COVID-19 pandemic and the war in Ukraine. This new reality of supply chain disruption, rising prices, tighter monetary policy and growing credit risk poses major questions for European banks’ climate strategies. Can banks still deliver their net-zero commitments in these circumstances?

EY’s knowledge collaboration with the European Banking Federation (EBF) allows us to explore this vital issue in depth. During August and September 2022, we surveyed 27 major European banks with combined total assets of more than USD16tn across 18 jurisdictions. The survey was followed up by in-depth workshops involving several institutions.

The paper, “Are volatile geopolitics and macroeconomics disrupting the path to net zero?” shows how European banks are balancing commitments to net zero while facing two unprecedented — and interconnected — crises.

Key findings of the report are:

  • While many banks have begun to embed climate risks into their processes and align lending portfolios with their climate commitments, recent economic and political shocks have slowed transition agendas.
  • Overall risk appetites are unchanged, but attitudes have shifted alongside prospects for key industries. This is especially true for energy, but also other sectors including transportation, mining and metals, business services and manufacturing.
  • European banks remain firmly committed to their long-term net-zero goals against a backdrop of irrefutable environmental science, pressing social imperatives, regulatory activity, investor pressure and political expectations.
  • Significant practical hurdles are faced in supporting the real economy through the current crisis while continuing to decarbonize. These include weak disclosures, uncertainty over government policies and a lack of clear sector-specific transition pathways.
  • Many banks expect current disruptions to accelerate medium-term demand to finance cleaner energy and infrastructure renewal, but this will depend on the actions of clients, governments and supervisors.

The reality is that transition was never going to happen in a smooth, straight line. There will be many bumps in the road and challenges to overcome on this 30-year journey. How European banks will stay on the road to net zero while meeting stakeholder expectations around energy security and pandemic recovery remains to be seen. Whilst impacted in the short-term, banks continue to remain focused on delivering their interim targets and net-zero commitments. Industry-wide initiatives and innovative partnerships with governments and other financial institutions will play an important role. Clear and measurable transition plans, backed by thoughtful stakeholder engagement and communication, will be vital to delivering real-world impact. The transition is complex and challenging, success will require careful navigation.


European banks face an exceptionally complex outlook. The need to support the real economy today while also delivering long-term reductions in financed emissions poses unprecedented challenges. While banks remain committed to their climate goals, meeting competing stakeholder expectations now and in the future have become more challenging.

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