Bank Debate: Carbon Footprint Underwriting

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by KnowESG
KnowESG_Investment banks' carbon footprint underwriting
Image courtesy of Freepik

Investment banking giants find themselves in the midst of a heated debate concerning the integration of their underwriting activities into net-zero targets.

This contentious issue poses a threat to their progress in achieving decarbonisation goals. These banks take part in a standard-setting group that has discussions and votes on how to calculate the carbon footprint of underwriting deals, with Barclays and Morgan Stanley leading the way. However, clashes and disagreements over the past year have resulted in delays in publishing the first voluntary rule book on this matter.

Jeanne Martin, the head of the banking standards team at ShareAction, a responsible investment charity, criticises the potential hypocrisy in the debate, stating, "Investment banks think there's a lot of double standards taking place, with banks hyperinflating green targets and, on the other hand, fishing for a low weighting to be adopted elsewhere."

During a recent online meeting, negotiations reached a crucial point, ruling out the controversial option of a 17% responsibility weighting but failing to achieve consensus. Banks have been casting votes on weightings via email this week, with a deadline for submissions set for Friday.

"There's a lot of double standards taking place, with banks hyperinflating green targets and, on the other hand, fishing for a low weighting to be adopted elsewhere," added Martin, shedding light on the conflicting approaches.

HSBC, a member of the working group, has decided not to publish underwriting emissions data until an agreed-upon methodology is established. In its one-off publication of underwriting emissions last year, HSBC used a 100% weighting, revealing 29.5 million tonnes of carbon and equivalent gases associated with its capital markets activity in 2019.

Tensions have also emerged regarding the integration of decarbonisation targets for underwriting with existing net-zero goals for lending by sector, such as oil and gas. The Science-Based Targets Initiative (SBTI), responsible for validating banks' net-zero goals, has hinted at the potential rejection of joint targets that assign a lower weighting to underwriting than lending.

"If banks bundle loan and underwriting emissions calculated using separate methodologies, it would amount to 'greenwashing'," cautioned Jeanne Martin of ShareAction, underscoring the need for transparent and consistent accounting practices.

The outcome of this ongoing debate holds significant implications for investment banks' ability to align with decarbonisation goals and contribute to the transition toward a sustainable future.

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Source: Finance News Network


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