According to three persons with knowledge of the situation, banks that are trying to establish international guidelines for calculating emissions of carbon in stock or bond selling have decided to remove the majority of emissions from their carbon footprint.
After months of disagreement over the matter, most banks forming an industry working group supported a proposal earlier in this month, which is to exempt two-thirds of total emissions connected to their capital market activities from being put down to them in emissions accounting.
If maintained, this decision would put banks against environmentalists who claim that the banking sector should bear 100% responsibility for carbon produced by activities funded through the sale of bonds and stocks, the same as it does with loans.
The Sierra Club, an environmental organization, claims that from 2016 to 2022, capital markets, as opposed to direct lending, accounted for nearly half of the total financing given by the six largest US banks to major fossil fuel businesses.
The way banks account for those emissions will have an influence on their goals for being carbon-neutral and major banks have agreed to reduce their net emissions to zero by 2050, with interim objectives set for the current decade.
Banks in the working group with large capital market operations argued that since they have no control of borrowers, unlike what they can do with loans, they should only be responsible for 33% of those emissions from activities supported through sales of stock and bonds. According to the sources, banks also raised concern over capital market-based emissions dwarfing lending-related emissions.
Those who advocate for a lower accounting threshold argue that accepting full responsibility for the emissions will result in double-counting throughout the system, given that stock and bond holders will account separately for a portion of the emissions produced by financing processes in their individual carbon footprints.
Most banks in the working group supported the 33% criterion, but two disagreed, with one asking for 100%, according to sources.
The accounting criterion won't be legally binding. The PCAF (Partnership for Carbon Accounting Financials), which is a bank association trying to unify carbon accounting throughout the sector, organized the working group in the expectation that others would adopt the criterion that emerges.
The PCAF board now has the final word on whether the 33% portion for the capital market should be adopted. According to two individuals, no decision had yet been made.
According to the sources, PCAF had grown upset with how much time and effort had been expended arguing about the proper number, and thought that any percentage would be preferable to more delays. Because of different ideas, the release of PCAF's final strategy has been postponed since last year.
