A group of major banks, including Morgan Stanley, Barclays, Bank of America, Citigroup, and HSBC, have voted to exclude most of the carbon emissions generated by their capital markets businesses from their own carbon footprint.
The news, first reported by Reuters, stated that the banking group had argued the group should only be accountable for 33% of the emissions from activities financed through bonds and stocks. The reason given was that they don’t have the same level of control over the borrower as they do with loans, which means they shouldn’t be held fully accountable for the borrower’s emissions.
They futher argued that assuming responsibility for 100% of the emissions would actually lead to double-counting, as investors in bonds and stocks would also be counting those emissions in their own carbon footprints.
If upheld, the decision would create a new front in the battle between banks and environmental advocates, who argue the banking industry should be held accountable for the emissions generated by activities. Campaign group ShareAction said that the 33% weighting for bank climate risk had been “plucked out of thin air.”
According to the Reuters source, the Partnership for Carbon Accounting Financials (PCAF), which formed the working group, had become frustrated at how much energy had been spent arguing over the right number, and believed any percentage was better than further delays.
The decision is not yet final, as it still needs to be approved by the PCAF’s board. Two of the sources said no decision had been made, but it was reluctant to override the working group.
What could this mean for the banks?
The decision could make it easier for banks to meet their net zero emissions targets, especially since many have expressed concern that capital market-related emissions are dwarfing lending-related emissions. However, it could also make it more difficult for them to assess their true climate risk.
Furthermore, if banks only have to account for 33% of the emissions from their capital markets businesses, they may be less likely to take steps to reduce those emissions.
