Midsize banks are catching up to the largest lenders in adopting climate-risk strategies, but they lag behind in turning commitments into action, according to a new study.
The study from the consulting firm Baringa Partners US assessed the sustainability agendas of 18 banks with assets between $50 billion and $225 billion, based on the banks' publicly available environmental and social financing strategies.
Two-thirds of the midsize banks in the study have stated an intent to consider climate-related financial risks, but few have gone further than that, according to the report.
The analysis focused on the clarity of the banks' targets to reduce emissions, whether they calculate Scope 3 financed emissions and the extent to which they embed climate considerations into their existing risk management functions.
"Mid-tier banks have fallen behind their larger counterparts in supporting the move to a greener economy," Baringa stated in the report.
Fewer than half of the midsize banks in the study have implemented climate-risk management tools, while only 17% of them have undertaken a climate-risk scenario analysis, according to the report.
And while eight of the 10 largest U.S. banks have pledged to reach net-zero greenhouse gas emissions by 2050, only half of the midsize banks in the study have announced targets to reduce emissions, and just 18% of them have set "explicit" net-zero targets, according to the report.
Two-thirds of the banks included in the report have begun reporting direct and indirect emissions, yet none have begun to report on the difficult-to-calculate financed emissions category, Baringa reported.
Some midsize banks have taken preliminary steps toward reporting financed emissions. Huntington Bancshares, which has $183 billion of assets, has
Larger banks, meanwhile, have only recently begun exploring the disclosure of financed emissions.
For example, Bank of America made its
"There is effort associated with calculating financed emissions," said Melissa Klimek, a senior manager in Baringa's climate practice who co-authored the study.
She argued that "until they start showing progress there, midsize banks are not achieving their full potential for how they contribute to improving the climate crisis."
Midsize banks have also lagged behind larger banks in publishing reports based on frameworks such as the Task Force for Climate-related Financial Disclosures. In 2021, Regions Financial in Birmingham, Alabama, became
"This is all fast developing from a regulatory standpoint. I think we may begin to see more expectations from our banking regulators, certainly as a public company," Regions Chief Governance Officer Andrew Nix said at the time.
Midsize banks have taken a more cautious approach to incorporating climate commitments into their risk management strategies due partly to uncertainty about whether smaller lenders will be included in new disclosure regulations, Klimek said.
The Securities and Exchange Commission unveiled a proposal last June that would require banks and other publicly traded companies to
"Larger banks that rushed to make those commitments have put themselves in a tougher situation, especially when regulation starts to require them to show progress towards goals," Klimek said.
"Taking a slightly slower approach seemed to possibly be a wiser move in this situation," she said. But now, "banks can no longer afford to go slow on sustainability."
