In what some have flagged as their last stand-alone climate reports, banks[1] and insurers remained focused on setting targets and reducing operational emissions.
Delivering on their commitments under the Net Zero Banking Alliance (NZBA), all banks have now set financed emissions targets for oil and gas and thermal coal mining sectors. Most have set additional targets for power generation, commercial and residential real estate, transport, and heavy industry (including steel, cement and aluminium). Most banks have not set targets for the Australian agricultural sector. Several banks discussed challenges with setting targets for this industry, including availability and quality of emissions data and a lack of an Australian pathway for this sector which is aligned with the Paris Agreement.
Exposures to fossil fuel extraction generally remained carefully managed. Some banks have implemented policies to cease or significantly reduce directly financing new fossil fuel projects (such as coal mines, coal-fired power plants and upstream oil and gas projects). Where banks had committed to cease funding for new upstream oil and gas projects, they usually noted exceptions arising due to national energy security issues.
Similarly, the reduction of scope 3 emissions was also an ongoing priority for insurers. Most insurers had committed to a scope 3 emissions reduction target. Most insurers discussed actions taken to reduce emissions from their underwriting portfolios. Of these, some insurers had set commitments related to the emissions of their underwriting portfolio. All banks and insurers had set targets for their scope 1 and 2 emissions.
Several banks also identified new opportunities to support home loan customers in reducing their emissions, including with new lending products to support customers installing solar panels and batteries in their homes. Insurers were also taking measures such as allocating a portion of customer insurance premiums to impact investments aimed at achieving positive environmental and/or social outcomes or working with community partnerships aimed at natural disaster risk reduction.
Nature reporting is still in its preliminary stages. Most banks were taking steps to define their approaches to nature-related reporting and target setting and a few banks had started to draw on the work of the Taskforce on Nature-related Financial Disclosures (TNFD) to guide their reporting. Some insurers discussed contributing to industry groups that are developing commentary around the role nature reporting has to play in the insurance sector.
For the purpose of this report we use bank to also refer to broader financial services companies with an ADI.
Reporting on financed emissions under the NZBA
In 2024, the banks were all signatories to the United Nations-convened NZBA. The NZBA’s aim is to align the banking sector with global climate goals by establishing science-based targets for reducing financed emissions – that is, transitioning the banking sector’s lending and investment portfolios to net zero by 2050. In accordance with the NZBA 2024 framework, the banks have set financed emissions targets for a range of high-emitting sectors. Common sector targets include coal, oil and gas, transport, heavy industry and residential and commercial real estate.
In February 2025, Macquarie announced it will no longer be a member of the NZBA, following the trend of a number of major US and Canadian banks.[2] One of these, Wells Fargo, has scrapped its financed emissions targets, saying ‘many of the conditions necessary to facilitate our clients’ transitions have not occurred’.[3] Similarly, HSBC, has put its interim financed emissions targets under review.[4] On the other hand, at least some European banks appear to be doubling down, with several declaring their intention to remain committed to the NZBA and some calling it an opportunity for the NZBA to be more ambitious with its commitments.[5]
The NZBA has undoubtedly watched the announcement of the recent suspension and review of the similarly motivated Net Zero Asset Managers initiative, announced shortly after Blackrock’s departure from that initiative.[6] The list of signatories has been removed from the Net Zero Asset Managers website pending the outcome of the review.
On 15 April 2025, the NZBA announced its members had voted in favour of proposed changes to the 2024 framework, including a softening from requiring banks’ commitments to align with limiting temperature rises to 1.5˚C, to requiring them to align with temperature rises of ‘well below 2˚C, striving for to 1.5˚C’.[7]
Meanwhile the New Zealand Commerce Commission has said it will investigate whether commitments by lenders under the NZBA could breach anti-cartel requirements.[8] This follows complaints and investigations in the US against the NZBA and other alliances on bases including antitrust grounds, which have led to the Net Zero Insurance Alliance being disbanded and reformed as the UN Forum for Insurance Transition to Net Zero.[9]
As banks strive to meet their commitments under the NZBA, some have discussed practical difficulties in setting emission targets and accurately reporting in certain industries. To ensure transparency despite these difficulties, banks have made disclosures such as:
- opting to cease reporting on emissions for certain sectors due to data anomalies and issues with baselines set during COVID;
- deciding not to set sector targets for agriculture due to a lack of Australian pathway for this sector which is aligned with the Paris Agreement; and
- disclosing that they will not meet certain commitments or are not currently on track to meet certain targets.
Assumptions underlying financed emissions sector targets
Financed emissions are scope 3 emissions – that is, indirect emissions that occur at sources not owned or controlled by the entity. Assumptions relating to financed emissions are therefore key and generally prominently disclosed by banks and insurers.
The reports generally identified the decarbonising of Australia’s electricity grid and the broader economy as a key factor to enable them to meet their targets. Examples of other assumptions include homeowners investing in home energy upgrades, an increasing rate of adoption of electric vehicles, and the commercialisation of carbon capture and storage.
Several banks and insurers noted changes to Australian government policies and industry progress on decarbonisation will impact climate modelling and their ability to meet targets. Some banks also explicitly called out that if the electricity grid was not decarbonised in accordance with their assumptions, they will be unable to meet a range of their relevant financed emissions sector targets.
Most banks and insurers included forward-looking statements disclaimers cautioning readers about the significant uncertainty in climate metrics and modelling and the many underlying risks and assumptions that may affect actual outcomes.
Actions being taken to meet financed emissions sector targets
Banks also took steps to help customers reduce their emissions, and thereby assist the banks to meet their financed emission targets. Some banks are offering dedicated products to help customers reduce their emissions (such as loans for home energy upgrades and specialised financing for electric vehicles).
Banks are also focused on engaging with customers on their sustainability strategies. In particular, some banks have introduced requirements for certain customers to put in place transition plans and develop tools to assess and engage with customers on their transition plans. Some banks also discussed incorporation of ESG risk assessment in their credit processes.
Similarly, most insurers are working towards climate responsible underwriting and investment portfolios. One insurer identified that they were currently developing a transition plan including underwriting targets, expected to be released in FY25. Another insurer had set a net zero underwriting strategy and was in the process of engaging with key customers to progress this.
Banks are also focused on rebalancing their portfolios towards less emission intensive activities. Multiple banks have ceased to directly finance new coal projects, instead encouraging investments in renewable energy projects. Several insurers have also committed to impact investments to focus on green bonds project financing which provides environmental benefits for wind and solar farms, clean transportation and lower carbon commercial properties.
Advocating for government policy in relation to financed emissions
Some banks discussed in their reports various government policies that they anticipated would assist them in meeting their financed emission targets. Examples of policies identified by certain banks included:
- in relation to commercial and residential real estate: the National Construction Code 2022, the promotion of low carbon building practices and the integration of smart metering for all Australian households and small business;
- a structured approach to net zero planning and the development of sectoral decarbonisation pathways by the Australian government; and
- policies aimed at derisking renewable energy and transmission projects.
Insurers also included policy and research initiatives they support in their reports. In particular, most insurers were focused on:
- advocating for greater government investment in disaster risk reduction and community resilience measures; and
- supporting government consultations and inquiries to share data and knowledge, seeking to ensure stronger investment in disaster mitigation and natural hazard resilience.
Meeting operational emissions targets
Most banks and insurers have set targets to reduce their operational emissions and several highlighted being close to or on track to reaching those goals. Some examples referenced in their reports as actions taken to reach net zero included the integration of renewable electricity sources for office spaces and the use of electric vehicles in domestic fleets.
However, challenges remained, particularly in managing ongoing dependencies on air travel for business. Reported actions to address this included enhancing travel policies, promoting remote work where appropriate, and investing in carbon offset initiatives to mitigate the environmental impact of necessary air travel.
The affordability of insurance premiums is an emerging risk for Australian banks and insurers, attributed to an increased frequency of claims, higher building and labour costs, supply chain issues, and global reinsurance costs post-disaster events. Several banks and insurers also explicitly attribute this to the impacts of climate change and the severity of natural disasters in their climate reporting.
Insurers continue to monitor the risk of insurance affordability through internal analysis procedures and stakeholder engagement, and are engaging with government initiatives to address issues associated with this risk. As most banks view the issue as an emerging risk for customers, they have taken steps to analyse insurance affordability across mortgage lending portfolios. With the increased attention given to the issue of insurance affordability, many banks and insurers recognise the need for government policy settings to curb impacts for customers, especially for high-risk natural disaster areas.
The percentage of households experiencing home insurance affordability stress was 15% in 2024 (up from 12% in 2023 and 10% in 2022). [10]
Integrating technology
Most banks highlighted the steps they were taking to integrate technology to support climate reporting and the net-zero transition for customers. This included developing technology solutions to support the collection, storage and use of climate data for reporting purposes, supporting technology pilots for emitting sectors, and investing in building data and analytical capabilities through climate risk tools. Several banks also focused on agricultural tools, such as one bank’s tool to assess physical climate risk for agribusiness and another bank’s pilot of an online emissions calculator and reduction planner to assist agricultural emissions measurement.
Some insurers also referenced measures taken to integrate technology to improve data management. This includes data and risk assessment technologies for reporting on internal and third-party suppliers, collaborative platforms to collect data from stakeholders and developing a entity-wide data strategy.
Considering nature
Nature remained a developing area of focus amongst banks and insurers.
Several banks indicated an intention to commence nature-related reporting through, for example, the development of a nature-positive banking strategy, investment in nature-related partnerships, engagement on key industry initiatives, and the development of sector level nature risk assessment tools.
Several banks also acknowledged the emerging significance of the TNFD with some starting to draw on the recommendations made by the TNFD to guide their reporting. A few banks also included TNFD indexes in their climate reports.
In a similar vein, one insurer identified biodiversity loss as an emerging risk that may result in increased risks and costs for the insurer. Measures taken by some insurers to address nature risk include broadening the scope of climate research to include biodiversity, and joining the PSI Nature-Positive Insurance Working Group.
Household affordability stress is defined as households facing insurance premiums that are more than four weeks of gross household income. Source: Home Insurance Affordability and Home Loans at Risk (2024).
What’s next?
For future reports, the banks have flagged they are focused on the mandatory reporting regime, setting additional sector-level targets, assisting business customers develop mature transition plans, progressing performance against existing targets and use of technology to support climate reporting. Insurers shared similar ambitions in their 2024 reporting but with an added emphasis on natural disaster resilience.
To learn more about climate governance and reporting trends in 2024 across other ASX50 sectors, click on the relevant sector below:
Otherwise, for further advice on navigating the Australian mandatory reporting regime, please contact a member of the King & Wood Mallesons or Owl Advisory team.
Download
