A working group consisting of major banks is currently engaged in the development of global standards for accounting carbon emissions in bond and stock sale underwriting, as reported by Reuters on July 30. Recent discussions within the group have resulted in a controversial decision to exclude a significant portion of these emissions from the banks’ own carbon footprint. Specifically, the majority of banks in the working group have supported a plan that attributes only one-third of the emissions linked to their capital markets businesses to their carbon accounting, leaving the rest unaccounted for. This decision has sparked disagreement with environmental advocates, who argue that banks should bear full responsibility for the emissions generated by activities financed through bonds and stocks, as they already do with loans. However, those supporting the 33% threshold contend that assuming responsibility for 100% of the emissions could lead to double-counting across the financial system since bond and stock investors may also separately account for some of these emissions in their carbon footprints. The ultimate decision on this accounting standard will be determined by the Partnership for Carbon Accounting Financials (PCAF).

The disagreement over carbon accounting could significantly impact banks’ targets for becoming carbon-neutral by 2050, with potential implications for the industry’s efforts to address climate change. The participating banks in the working group, including prominent institutions such as Morgan Stanley [MS:US], Barclays [BARC:LN], and Bank of America [BAC:US], are striving to reduce their carbon footprints while expressing concerns about capital market-related emissions overshadowing their lending-related emissions.

Sources:

https://www.reuters.com/business/banks-vote-limit-accounting-emissions-bond-stock-sales-sources-2023-07-30/