Banks restrict accounting of emissions in bond and stock sales

Banks restrict accounting of emissions in bond and stock sales

Banks Exclude Most Emissions from Their Carbon Footprint, Sparking Controversy

Image

Published: London, July 30

Banks that are working together to develop global standards for accounting carbon emissions in bond or stock sale underwriting have voted to exclude the majority of these emissions from their own carbon footprint. This decision, made by the majority of banks in an industry working group, has sparked controversy and disappointed many environmental advocates who believe that banks should assume full responsibility for the emissions generated by the activities they finance.

Banks and Environmental Advocates at Odds

The decision by banks to exclude two-thirds of the emissions linked to their capital markets businesses from being attributed to them in carbon accounting has pitted them against environmental advocates. The advocates argue that the banking industry should take full responsibility for the emissions generated by activities financed through bonds and stock sales, just as they already do with loans.

According to the environmental group Sierra Club, almost half of the financing provided by the six biggest U.S. banks for top fossil fuel companies between 2016 and 2022 came from capital markets rather than direct lending. This highlights the significance of banks’ accounting for these emissions, as it will impact their targets for becoming carbon-neutral.

Responsibility and Control

Banks with significant capital markets operations in the working group have argued that they should only assume responsibility for 33% of the emissions generated by activities financed through bonds and stock sales. They claim that they do not have the same level of control over borrowers in these cases, compared to loans. Additionally, banks have expressed concerns about capital market-related emissions overshadowing their lending-related emissions.

However, those advocating for a lower accounting threshold argue that assuming 100% responsibility would lead to double-counting across the financial system. Bond and stock investors would also account separately for emissions generated by financing activities in their own carbon footprints.

Split Opinions within the Working Group

The majority of banks in the working group support the 33% threshold, but at least two banks have dissented. One bank is advocating for full responsibility to be assumed for all emissions. The final decision on whether to adopt the 33% accounting share for capital markets will be made by the Partnership for Carbon Accounting Financials (PCAF), an association of banks seeking to standardize carbon accounting across the industry.

The Role of PCAF and Future Implementation

The accounting standard developed by the working group will not be mandatory, but it is hoped that it will become a standard that others in the industry will adopt. The final decision on the accounting threshold will be determined by PCAF’s board. While no decision has been made yet, it is unlikely that the board will override the working group.

The importance of this decision is not lost on PCAF, as publication of their final methodology has already been delayed due to disagreements over the accounting threshold. PCAF seeks to establish standards for emissions and provide transparent and unbiased assessments of banks’ climate risks and impacts.

Bundling Emissions and Target Setting

One area of uncertainty is whether banks will have to bundle together their capital market-related emissions and their lending-related emissions into a single target or separate them. Having one target but two different accounting approaches for different emissions could prove challenging. The Science Based Targets initiative, a separate body supported by the United Nations and environmental groups, is currently developing net-zero standards that will include considerations on whether banks should have different or combined targets.

Conclusion

The decision by banks to exclude the majority of emissions from their carbon footprint has caused controversy and disappointment among environmental advocates. While banks argue for a lower accounting threshold due to limited control over capital market activities, critics believe this decision undermines the responsibility banks should have in mitigating climate change. The final decision by PCAF’s board will determine whether the 33% threshold is adopted, with hopes of establishing a standardized approach to carbon accounting in the banking industry.

Colombia’s 2024 budget proposed at 50...
Ma’aden, a Saudi Arabian company, pla...
Kraken’s Ethereum funding gateway iss...
Royal Caribbean’s travel revenue has ...
Wholesale cocoa cost reaches highest level ...
Yellow, an orange-themed trucking giant, is...
Business

Business