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November 07, 2013
Banks to Receive Guidance on Reporting Emissions in Lending
    by Robert Kropp

Only six percent of major financial institutions report on emissions associated with lending and investments, so guidance is being developed to help them do so.


When the 2011 Newsweek Green Rankings were published, it came as a surprise to many that seven of the worst performing US companies were financial firms. The reason for such a poor performance was inadequate reporting of emissions in corporate supply chains; in the case of financial firms, emissions from their lending and investment portfolios. Financial institutions are universal owners, and as such manage portfolios that are exposed to risks associated with high-emitting sectors such as oil and gas and coal.

By the time of the 2012 Rankings, conditions had not changed all that much. The Rankings stated that the relationships of financial firms “with companies engaged in environmentally sensitive activities overshadow commitments to mitigate climate change.” In their 2012 Coal Financing Report Card, BankTrack and the Rainforest Action Network noted, “While banks are employing a lot of 'climate speak', this is more or less a smoke screen to continue their financing of the coal industry.”

Which brings us to November, 2013. According to the Greenhouse Gas (GHG) Protocol and the UNEP Finance Initiative, “only six percent of financial companies in the FTSE Global 500 reported any emissions associated with lending and investment portfolios to CDP” in 2013.

“While goods and services of all types are increasingly subject to standards and regulation requiring appropriate client information and transparency on environmental and social issues, there is often limited or no information on the sustainability impacts of financial products and services,” said Yuki Yasui, Acting Head of the UNEP Finance Initiative. “Without such information, responsible financial institutions receive no benefit, and differentiation between sustainable and non-sustainable financial products and services by end users remains difficult.”

To fill a gap that financial institutions appear unable to fill themselves, the two organizations launched an initiative last year “to develop guidance for the financial sector to account for greenhouse gas (GHG) emissions associated with lending and investments and track emissions reductions over time.”

“In the move towards a low-carbon economy,” the organizations stated, “measuring and managing GHG emissions associated with investments needs to become standard business practice for financial institutions and portfolio investors.”

Last month, an Advisory Committee meeting was held to begin the guidance development process, which is expected to result in the publication of guidance on Scope 3 or indirect emissions specific to the financial industry. The drafting of the guidance is scheduled to begin by the end of this year.

“When a bank focuses on reducing office (or ‘operational’) emissions, they miss the point,” Amand a Starbuck of RAN wrote. “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.”

In addition to participating in the GHG Protocol initiative, RAN has recommended that banks support measurement of their full exposure to emissions in their portfolios. Banks should also commit to significant annual reductions in their portfolios as well, RAN states.

“Most importantly,” Starbuck of RAN wrote, “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.”

 

 
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