Banking

Global banking group issues carbon accounting standards

A consortium of global banks representing nearly $18 trillion of assets has released a carbon accounting standard intended to help financial institutions gauge the greenhouse gas emissions they finance.

The Partnership for Carbon Accounting Financials aims to address a significant challenge for lenders that want to reduce their carbon emissions: a lack of uniform standards for measuring banks’ environmental impact.

“This is a really key milestone that we needed and was in big demand,” Giel Linthorst, executive director of the PCAF Secretariat, said in an interview. “Measuring the emissions of loans and long-term investments really is a foundational instrument. It’s often said that you cannot manage if you don’t measure.”

Banks have begun to more closely examine their environmental impact in recent years, motivated by pressure from activist shareholders, greater public awareness about climate change and the rising cost of severe weather events. A number of U.S. banks, including Citigroup and Bank of America, have publicly pledged to reduce the carbon emissions of their financing activities.

In order for banks to be able to reduce their carbon footprints, they need to first establish a baseline, reformers say. That’s what PCAF aims to accomplish.

The PCAF methodology issued this week covers six asset classes, including motor vehicle loans, commercial real estate, business loans and mortgages, and provides specific accounting rules for each asset class. Banks apply generally accepted accounting principles to those assets and then use either client level data or sector averages of greenhouse gas emissions to determine just how much of those emissions the bank is responsible for.

The standard also includes data-quality scoring to help financial institutions improve their data over time. In the immediate term, the standards will help banks pinpoint the assets on their balance sheet that have the biggest impact.

The $6.5 billion-asset Amalgamated Bank joined the PCAF in 2018. Morgan Stanley was the first large U.S. banking company to join PCAF this year, and Citigroup and Bank of America quickly followed suit. TD Bank Group also recently joined PCAF.

A total of 90 financial institutions around the world have joined PCAF so far, committing to achieve net-zero carbon emissions from their loans and investments by 2050.

The challenge now will be getting more financial institutions to join PCAF and apply the methodology, Linthorst said. The group hopes to reach 100 financial institutions by the end of this year and 250 by 2022.



 

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