Major Banks Scale Back Climate Pledges As Global Transition Efforts Show Signs Of Weakening

A new assessment of the world's biggest banks points to shifting priorities and growing questions about climate commitments. The findings highlight notable regional differences and emerging concerns for investors.

Some of the world's largest banks are showing reduced ambition on climate action, with several institutions weakening or withdrawing commitments that were once central to their low-carbon transition strategies, according to a new annual assessment of the global banking sector.

The findings are contained in the State of the Banking Transition 2026 report published by the TPI Global Climate Transition Centre at the London School of Economics. The study examined major banks using measures including market capitalisation and total assets and evaluated how institutions are managing the shift toward a lower-carbon economy.

Researchers found that climate-related commitments have continued to lose momentum. The sharpest decline was recorded in net-zero commitments, indicating that some banks are stepping back from goals that had previously formed an important part of their climate strategies.

The report also identified several institutions that have moved away from sector-specific emissions reduction targets. Canadian lenders RBC and Scotiabank, along with US-based Wells Fargo, were highlighted as having withdrawn sectoral targets. According to the report, this reflects a broader trend in which target-setting activity has declined significantly since reaching its high point in 2022 and 2023.

While many banks continue to maintain targets covering sectors such as automobiles, electricity generation, oil and gas, and steel, coverage remains limited across other industries. Areas including chemicals, diversified mining, food production and metallurgical coal are still excluded from climate targets at many institutions.

The assessment also revealed notable differences between regions. European banks achieved the strongest overall scores, a result linked in part to regulatory requirements within the European Union.

Regional Gaps Highlight Different Climate Strategies

The report notes that EU regulations require banks to disclose financed emissions and report financial exposure to high-emission sectors. These rules have helped place European lenders ahead of many international peers in climate-related reporting and target-setting.

By contrast, the lowest-performing banks in the assessment were primarily located in China and the United States. Japanese banks performed better overall than their Chinese counterparts.

Researchers observed that Chinese banks tend to focus more heavily on financing climate-related solutions rather than building broad climate-target frameworks. This approach reflects the role of state-backed support in driving climate investment within the country.

One of the new elements introduced in this year's assessment is an examination of how banks recognise climate-related risks within their financial statements.

The research found that this practice is currently most visible among European lenders. Seven European banks were identified as disclosing the accounting assumptions and judgement processes used when evaluating climate-related financial risks.

Dorota Wojnar, head of the ESG risks unit at the European Banking Authority, said transparency is essential regardless of whether a bank considers a climate risk material or immaterial. She noted that stakeholders and supervisors need visibility into the assumptions behind those conclusions in order to assess whether decisions are appropriately supported.

According to the report, climate-related risks most commonly appear in financial statements through expected credit loss calculations. Because these assessments are forward-looking and apply to significant portions of bank balance sheets, they serve as one of the primary channels through which climate risks are integrated into financial reporting.

More advanced institutions are moving beyond broad economic scenarios by incorporating detailed sector-specific and client-level information. The report cites examples where flood-risk data can be used to adjust estimates of collateral values within mortgage portfolios.

Despite progress in some areas, researchers argue that transparency remains inconsistent. While many banks now identify climate change as a significant source of risk, disclosure practices often fail to show how those risks are reflected in financial accounts.

The report concludes that this lack of visibility creates challenges for investors, regulators and policymakers attempting to evaluate the extent of banks' exposure to climate-related financial risks and their preparedness for the transition ahead.