New Standards Set the Baseline for Bank Reporting on Emissions from Capital Markets Activities

NEW  YORK – New guidance published today by the Partnership for Carbon Accounting Financials (PCAF), a global partnership of more than 450 financial institutions, sets the standard for how its signatory banks are expected to account for the greenhouse gas emissions resulting from their underwriting of bonds and equities, known as “facilitated emissions.” The guidance comes after protracted debate over the best way for banks to disclose these emissions, and pressure from shareholders and advocacy groups for banks to disclose and set targets for reducing them. 

• Read the final guidance: https://carbonaccountingfinancials.com/en/newsitem/pcaf-launches-a-new-accounting-and-reporting-standard-for-capital-markets 

The guidance establishes a first-of-its-kind standard for measuring and reporting facilitated emissions, and provides detailed methodological guidance with the aim of supporting banks in producing consistent and comparable emissions disclosures. The final methodological guidance — which has been fraught with months of contentious debate — requires signatory banks to report their facilitated emissions using a 33% weighting factor and account for capital markets transactions in the year the facilitation occurs. The standard also includes the option for banks to provide additional disclosure of facilitated emissions without the 33% weighting, which is seen as an improvement on the previous consultation draft. Standardized disclosure of facilitated emissions will provide greater transparency and accountability for banks to set targets to reduce underwriting for fossil fuel expansion in order to implement their net-zero commitments.

In response to the new guidance, Adele Shraiman, Senior Campaign Strategist for Sierra Club’s Fossil-Free Finance campaign said: 

“Banks have an enormous and overlooked climate impact from underwriting investments in big polluters, and disclosure of these impacts is long overdue. The PCAF standard provides a baseline for moving the industry forward on measuring and disclosing facilitated emissions using a transparent and consistent methodology. Now, the key is for banks to set ambitious targets for reducing their facilitated emissions, and execute on strategies that will lead to actual emissions reductions in the real economy. Disclosure won't fix the climate crisis, but reducing emissions will, and that’s where banks’ regulators, investors, customers and society should focus most on holding them accountable.”

Over the past year, the Sierra Club has advocated for greater standardization and consistency in bank disclosures, highlighting the troubling differences among disclosures by major banks. Currently, three major U.S. banks that are PCAF signatories (Bank of America, Citi, and Morgan Stanley) count all of their underwriting activities in their sustainable finance targets, but have yet to include underwriting in their emissions reductions targets. Essentially, these banks are taking credit for their facilitation of clean energy, while avoiding blame for their facilitation of fossil fuels. 

The Sierra Club has argued that banks should take full responsibility for their role in enabling greenhouse gas emissions through their underwriting, or at least to account for facilitation of climate solutions in the same way as dirty energy. However, the Sierra Club has argued that disagreements over the best methodological approach for facilitated emissions accounting are not the most important concern for reducing banks’ climate impacts. Rather, disclosures are simply the starting line for banks to begin reaching their emissions reduction targets. 

Background

Originally expected to be released at the end of 2022, the new PCAF standards have faced significant delays, reportedly due to member banks’ diverging opinions on the best approach to accounting and reporting facilitated emissions. The key point of contention in the methodology has been over how to weigh the banks’ facilitation activity — essentially, how responsible the banks are for the emissions that result from the bond and equities they underwrite. Some banks have expressed concerns about over-emphasizing their role in capital markets, arguing that their influence as underwriters is dwarfed by their role as lenders. See the full list of PCAF signatory banks here.

In July 2023, the Sierra Club’s Fossil-Free Finance campaign released a report on the role of big US banks in capital markets, revealing a hidden pipeline for fossil fuel financing through the banks’ underwriting of bonds and equities for polluting companies. The analysis raised important questions about how the 6 biggest US banks calculate and report on their facilitated emissions, and made the case for the importance of banks’ capital markets activities in achieving real-world emissions reductions.