Deadlocked, Banks Carbon Commitment Still on Discussed

Banks worldwide are working to develop a global standard for accounting carbon emissions in bond or stock sale underwriting. Recent deliberations have shown disagreement over how much of the industrys emissions are linked to banks carbon footprints.

Sources quoted by Reuters said the majority of banks involved in the deliberations voiced to exclude two-thirds of emissions related to banks capital markets business from being linked to their emissions calculations.

In a sense, banks only set a threshold of 33% of emissions from capital market financing that they carry out in calculating the banks carbon footprint. This calculation certainly significantly affects the banks efforts in achieving the agencys net zero emission promise.

No doubt, this was immediately met with protests from environmentalists who argued that banks should bear full responsibility for capital markets-related emissions, as is also the case with bank lending practices.

Looking at the role of capital market financing for companies, environmental activist groups revealed that around 50% of financing between 2016-2022 provided by six major US banks was disbursed to the largest fossil fuel user companies through capital markets rather than direct loan schemes.

Banks with significant capital markets operations have argued that they bear only 33% of emissions from such activities financed through bonds or stock sales. This is different from direct loan schemes where banks have standard customers who can make certain loans.

Banks are concerned that capital markets-related emissions could overshadow lending-related emissions. In addition, it is feared that there will be double emission calculations in the financial ecosystem if banks bear the full cost of these emissions. Because stock and bond investors also account for some emissions in their own carbon footprint.

The final decision on the standard is left in the hands of the Partnership of Carbon Accounting Financials (PCAF), an association of banks that seeks to harmonize carbon accounting.

Campaign groups deplored the 33% weighting, calling it a form of arbitrariness. They expect the PCAF to issue guidance ensuring transparent environmental risk and impact assessments.

Until the end of July 2023, there has been no mandatory or clear report related to this standard, which is then due to the complexity of setting the most suitable emission calculation threshold.