Banks get carbon emissions standard they sought for stock, bond deals

LONDON: Banks will need to account for a third of the emissions linked to their capital markets deals when they report their carbon footprint, after an industry-led standard setter launched a long-awaited methodology on Friday.

Disagreement between banks over how much of the emissions should be apportioned to them delayed a decision, considered a crucial part of making emissions reporting credible.

The Partnership for Carbon Accounting Financials (PCAF) had been trying since last year to finalise the standard for facilitated emissions - those generated by activities such as a lender helping a company issue a bond.

Pending the methodology, banks including Citi and Morgan Stanley have excluded the emissions from their reduction targets.

Environmental groups welcomed PCAF’s new standard, although ShareAction said it was disappointed banks would only have to account for 33% of the emissions linked to their capital markets businesses.

Reuters reported in July that banks working to develop the standard had voted to exclude the other two-thirds.

“Of course it wasn’t easy. Finding the number was complex. The most important objective of PCAF was to find a harmonising methodology that all banks can use,” PCAF Executive Director Angélica Afanador told Reuters.

Under the new standard, lenders have the option of disclosing 100% of their facilitated emissions as well as the 33% weighting.

Afanador said it was important to distinguish between banks as providers of capital via a loan kept on their balance sheets, and as facilitators for capital from investors in a stock or bond deal.

Banks signed up to PCAF must already account for 100% of the emissions from any financing that is kept on balance sheet - and so must investors for the emissions generated by the stocks and bonds they own.

Two thirds of US bank financing for fossil fuel expansion came via underwriting stocks and bonds, Sierra Club said in a July report. “Banks have an enormous and overlooked climate impact from underwriting investments in big polluters, and disclosure of these impacts is long overdue,” said Adele Shraiman, senior strategist for the Sierra Club’s Fossil-Free Finance campaign.

Shraiman said banks needed to set targets for reducing their facilitated emissions and follow through on their pledges.

Jeanne Martin, Head of the Banking Programme at ShareAction, said PCAF had given banks a “get-out-of-transparency-free card” by using a 33% weighting.