馃實 Banks’ Emissions Math Targeted in Scathing Report 馃搳

Investment bankers face scrutiny in a new report by nonprofit ShareAction, which focuses on a proposed framework for calculating the carbon footprint of capital markets. The report warns that if the industry adopts a diluted version of the plan, the environmental consequences will be severe. The analysis aims to preempt an announcement by the Partnership for Carbon Accounting Financials (PCAF), a group of banks responsible for aligning the finance industry with the Paris climate agreement goals. PCAF has faced /delays in releasing guidelines on accounting for emissions from bond and equity underwriting, known as financed emissions.


ShareAction expresses concern that PCAF might adopt a significantly weakened model, particularly regarding the weighting applied to capital markets volumes. ShareAction argues that if this occurs, several banks may underreport their climate impact for years to come. PCAF declined to comment on the findings of the ShareAction report, stating that the working group is still in discussions.


Traditionally, banks have primarily reported emissions from their direct lending activities, while carbon accounting in capital markets is relatively new. The banking industry asserts that calculating climate fallout in capital markets leads to double-counting, but nonprofits argue that it is crucial for the industry to meaningfully contribute to combating global聽 warming.


Xavier Lerin, senior research manager at ShareAction, emphasizes the need for transparency and stakeholder input in banking industry decisions. PCAF has been evaluating two models for calculating facilitated emissions: one requiring banks to report 100% of the carbon footprint of their underwriting, and the other suggesting 17% based on capital markets’ share of industry financing. A potential compromise figure between these two numbers is under discussion.


Banks, including members of the Net Zero Banking Alliance, have committed to following PCAF’s standards once they are finalized. Some banks, such as Goldman Sachs Group Inc. and Wells Fargo & Co., already employ versions of the 100% approach. ShareAction insists that anything less than 100% reporting is merely greenwashing.


PCAF raises concerns about the challenges associated with reporting all facilitated emissions, including the volatility of capital markets. ShareAction proposes addressing this issue by extending the calculation period beyond the year of issuance, perhaps using a five-year horizon. ShareAction also argues that downplaying underwriting benefits banks with significant oil and gas clients, as these sectors rely heavily on capital markets.


According to ShareAction, banks carry substantial climate impact in their capital markets operations, despite assuming limited risk due to the short-term nature of these transactions. ShareAction calls for comprehensive reporting to ensure a fair estimate of emissions and highlights that lending activities are the primary source of emissions for most banks.


The report by ShareAction urges the banking industry to consider the full implications of its actions on the climate and stresses the importance of accurate carbon accounting to achieve environmental goals. #ClimateAction #Sustainability #Finance