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The banking sector has a huge influence on climate change. Behind every energy carbon-emitting utility, fossil fuel company and infrastructure project you will find a complex web of financing: from underwriting and loans, to advisory services and asset management.
For the last decade, our team at RAN has been challenging banks to take responsibility and work to reduce these emissions.
If you take the time to read the average large banking corporation’s annual ‘Corporate Social Responsibility’ report, you’ll likely find a statement like this about carbon emissions:
“Achieving these (our 2017 targets) will represent a 37% decrease from 2006 for office emissions.”
Now, at first read, a 37% emissions reduction target sounds bold, ambitious and in line with the scale of reductions that we need to make if we are to keep global warming below two degrees and avoid catastrophic climate change.
But sadly, when a bank focuses on reducing office (or ‘operational’) emissions, they miss the point. The bulk of emissions that banks are responsible for stem from lending to and underwriting debt for carbon-intensive industries, like coal. These financed emissions dwarf the emissions caused through operational activities like electricity used in buildings and staff travel.
And up until now banks have not been reporting these, their biggest climate impacts: financed emissions.
But that could be about to change. Because this week sees the launch of a new initiative to help banks and other financial institutions measure their climate emissions from lending and investment portfolios. Initiated by the World Resources Institute, it’s called the Greenhouse Gas Protocol Financial Sector Corporate Value Chain (Scope 3) Standard.
Twenty three banks and financial-sector actors are working together to develop the standard, including the United Nations Environment Programme, the Carbon Disclosure Project, Bank of America, Citi and Wells Fargo.
This is encouraging news: banks are finally acknowledging their role in and exposure to climate change.
For this initiative to paint a complete picture of financed emissions, it should measure the full extent of a bank’s exposure to climate risk from its lending, underwriting and investment activities.
And most importantly, for banks to do their part in reducing climate emissions they will need to commit to using this financed emissions reporting initiative to inform what companies and projects they do and do not fund in the future, especially those that involve fossil fuel and electric power industries.
For a full set of recommendations, check out RAN’s 2012 publication, “Bankrolling Climate Disruption”.