Investment Bankers Add Capital Markets to Emissions Targets (2)

Banks that signed up to the world’s biggest climate finance coalition have agreed to add their capital markets businesses to their emissions reduction goals.

Members of the Net Zero Banking Alliance, which is part of the wider Glasgow Financial Alliance for Net Zero created in 2021, have voted to “update and reinforce guidelines for climate target setting,” which include documenting “emissions attributable to banks’ capital markets services” for the first time, NZBA said in a statement on Wednesday.

Until now, most of the 140 members of NZBA have pledged to zero out their financed emissions, or those enabled by their loans and investments. While that was a pragmatic starting place in 2021 given industry standards at the time, the absence of debt and equity underwriting meant disclosures ignored a business area that for many banks has a much larger carbon footprint.

“For some banks, capital markets arranging and underwriting services provided to clients in the issuance of new debt and equity instruments are their largest source of attributable greenhouse gas emissions,” NZBA said.

The new guidelines will “add, update, and clarify technical language to reflect the evolution of practices, methodologies, and data availability in the last three years, including around policy engagement and transition planning,” according to the alliance.

The decision follows new standards provided by the Partnership for Carbon Accounting Financials in December. That <-bsp-bb-link state=”{“bbDocId”:”S4ZDOPT0AFB4″,”_id”:”0000018e-3947-dedb-adee-3f5f70c40000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>framework-bsp-bb-link> encourages banks to disclose 33% of greenhouse gas emissions associated with their capital markets business.

What BloombergNEF Says:

“Rules that ask banks to tie carbon dioxide accounting in their “transition finance” deals to specific projects’ expected carbon impact could inject transparency and confidence in a market that has struggled to take off.”

Click <-bsp-bb-link state=”{“bbDocId”:”S98FR5T0AFB4″,”_id”:”0000018e-3947-dedb-adee-3f5f70c60000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>here-bsp-bb-link> for the full report by BNEF’s <-bsp-person state=”{“_id”:”0000018e-3947-dedb-adee-3f5f70c60001″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Miquel Kishimoto Guardiola-bsp-person>.

The NZBA announcement quickly drew Republican Party ire. West Virginia State Treasurer Riley Moore called on banks to quit the alliance, whose guidelines he said “violate the fiduciary duty banking institutions have to their clients and shareholders.”

The NZBA update is “the latest attempt by global elites to pressure banks into cutting off capital and divesting from reliable sources of energy like coal, oil and natural gas, which are the bedrock of our economy,” he said in an emailed statement.

Read More: <-bsp-bb-link state=”{“bbDocId”:”S7G6CUT1UM0W”,”_id”:”0000018e-3947-dedb-adee-3f5f70c80000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>‘Toxic’ Attacks on ESG Lead Wall Street to Mount a New Defense-bsp-bb-link>

Against a backdrop of increasingly hostile attacks from the GOP, climate alliances have sought to bolster their frameworks. NZBA’s latest guidelines include a disclaimer stating all members must comply with all applicable laws, including antitrust regulations. Each signatory is responsible for “independently setting” its own targets “in its own judgment and in line with its own business goals,” NZBA wrote.

Banks can’t tackle the climate crisis alone, but they play a key role in helping reduce emissions, NZBA said. Its members “can support government-led climate strategies by helping their clients in their efforts to reduce real economy emissions,” the alliance said.

However, it also added that “members do not assume responsibility for achieving outcomes dependent on factors outside of their control, nor directly or indirectly regulate capital flows to any country, sector or industry.”

The updated standards mean “NZBA member banks will continue to set targets in line with the most ambitious temperature goals of the Paris Agreement and the latest science,” said <-bsp-person state=”{“_id”:”0000018e-3947-dedb-adee-3f5f70c90000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Eric Usher-bsp-person>, head of the United Nations Environment Programme Finance Initiative. “Doing so positions these banks to prosper as economies around the world decarbonize and transition towards a cleaner, healthier, and more resilient future.”

Amalgamated Bank, Ecology Building Society and Triodos Bank, a group of green banks that have in the past criticized NZBA for a perceived lack of climate ambitions, said the latest announcement was “welcome.”

“The updated guidelines give much-needed direction,” the group said in a statement. “However, the language used provides too much latitude for banks in deciding whether to take key steps that are central to credibly achieving portfolio alignment with science-based climate scenarios. “

NZBA members must set targets that align with a goal to limit global warming to 1.5C above pre-industrial averages by the end of the century and which cover <-bsp-bb-link state=”{“bbDocId”:”S9XUJPDWRGG0″,”_id”:”0000018e-3947-dedb-adee-3f5f70ca0000″,”_type”:”0000016b-944a-dc2b-ab6b-d57ba1cc0000″}”>all scopes-bsp-bb-link> of clients’ emissions.

Banks will be expected to start applying the new guidelines to their decarbonization targets from April 22 this year on a comply-or-explain basis. By Nov. 1 next year all targets “should have been reviewed to include capital markets targets, where significant and where data and methodologies allow,” NZBA said.

GFANZ is co-chaired by Mark Carney, who is the chair of Bloomberg Inc.’s board and a former Bank of England governor, and Michael R. Bloomberg, the founder of Bloomberg News parent Bloomberg LP.

(Updates with comment from Riley Moore.)

–With assistance from <-bsp-person state=”{“_id”:”0000018e-3947-dedb-adee-3f5f70cc0000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Saijel Kishan-bsp-person>.

To contact the reporter on this story:
<-bsp-person state=”{“_id”:”0000018e-3947-dedb-adee-3f5f70ce0000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Alastair Marsh-bsp-person> in London at amarsh25@bloomberg.net

To contact the editor responsible for this story:
<-bsp-person state=”{“_id”:”0000018e-3947-dedb-adee-3f5f70d00000″,”_type”:”00000160-6f41-dae1-adf0-6ff519590003″}”>Tasneem Hanfi Brögger-bsp-person> at tbrogger@bloomberg.net

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