Exclusive: Banks vote to limit issuance accounting for bond and stock sales


LONDON, July 30 (Reuters) – Banks working to develop global standards for accounting for carbon emissions when subscribing to bonds or selling shares have voted to exclude most of those emissions from their own carbon footprint, they said three people familiar with the matter.

Earlier this month, a majority of banks belonging to an industry working group backed a plan to exclude two-thirds of emissions related to their capital markets operations from being attributed to them in carbon accounting, it said below Months of disagreement on the subject.

If the decision is upheld, the banks would face off against environmentalists, many of whom say the banking sector should take full responsibility for emissions generated by activities funded by borrowing and stock sales, as it already does with lending is.

According to environmental group Sierra Club, between 2016 and 2022, almost half of the financing provided by the top six US banks to leading fossil fuel companies came from capital markets rather than direct loans.

How banks account for these emissions will impact their carbon neutrality targets. Major lenders have committed to net-zero emissions by 2050 and have set interim targets for that decade.

Banks with large capital markets activities argued in the working group that they should only take responsibility for 33% of the issuance of activities funded by bonds and equity sales, as they do not have control over the borrowers as they do with loans. According to the sources, banks also expressed concern that capital market-related issuance would dwarf their credit-related issuance.

Proponents of low-threshold accounting say that taking responsibility for 100% of emissions would result in double-counting across the financial system, as bond and equity investors would also separately account for some of the emissions generated by financing activities in their own carbon footprints.

A majority of banks on the working group supported the 33 percent limit, but at least two disagreed, with one in favor of 100 percent, the sources said, asking not to be identified because the deliberations were confidential.

The accounting standard will not be mandatory. The Partnership for Carbon Accounting Financials (PCAF), a banking association working to harmonize carbon accounting across the industry, has formed a working group of major banks in hopes others will follow the emerging standard.

The PCAF Board of Directors will now have the final say on whether to retain the 33% accounting interest for the capital markets. Two of the sources said no decision had been made but were reluctant to suspend the working group.

A PCAF spokesman did not respond to a request for comment.

Working group members are Morgan Stanley (MS.N)Barclays (BARC.L)Bank of America (BAC.N) Citigroup (CN)HSBC (HSBA.L)BNP Paribas (BNPP.PA)NatWest (NWG.L) and Standard Chartered (STAN.L). All but two officials declined to comment or did not respond to requests for comment.

A Barclays spokesman said the bank supports the PCAF’s work in setting emissions standards and declined to comment further. A Standard Chartered spokesman said the bank agreed with any emissions accounting thresholds and declined to comment further.

The sources said PCAF had grown frustrated with how much energy was being put into arguing about the correct number and believed any percentage was better than further delays. Because of the disagreements, the release of the final PCAF methodology has been delayed since last year.


Campaign group ShareAction said the 33% weighting was “made out of thin air”.

“PCAF has a responsibility to publish guidance that allows for a transparent and unbiased assessment of banks’ climate risks and impacts,” said their research lead, Xavier Lerin.

It is not yet clear whether banks need to combine their capital markets-related issuance and their credit-related issuance into one target or separate them.

Having a single target but having two accounting approaches for the different emissions could prove challenging, one of the sources said.

The Science Based Targets initiative, a separate body backed by the United Nations and environmental groups, is developing net-zero standards that include whether banks should have separate or combined targets.

Reporting by Tommy Reggiori Wilkes in London; Adaptation by Greg Roumeliotis and Rosalba O’Brien

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