Finance & Investment
Global Banks Launch Industry Standard for Measuring, Reporting Financed Emissions

This week, during London Climate Action Week, the Partnership for Carbon Accounting Financials (PCAF) — an industry-led partnership to facilitate transparency and accountability of the financial industry to the Paris Agreement — launched the Global GHG Accounting and Reporting Standard for the Financial Industry. The new methodology enables banks, asset managers and asset owners to measure and disclose the emissions associated with their lending and investment activities.

Endorsed by the GHG Protocol — creator of the world's most widely used greenhouse gas accounting standards — the Standard is being launched as the global financial industry is increasing its focus on climate change impacts; and as shareholders, regulators and stakeholders are pressuring the sector to take a more proactive role in supporting solutions in partnership with governments and civil society. At the same time, financial institutions have a significant opportunity, as trillions in capital will be required in the shift towards a low-carbon economy.

“By providing a globally agreed-upon framework, PCAF enables the financial sector to create a shared understanding of each bank’s contributions and progress toward climate action,” said Lila Holzman, energy program manager at advocacy group As You Sow (AYS), which applauds the new Standard. “As data quality improves, the tool will become increasingly useful to understand the climate impacts of financing activities.”

In 2019, AYS and a range of investors filed climate resolutions with five of the largest US banks; and asked them to join PCAF and begin measuring and disclosing their financed emissions. This summer, Morgan Stanley, Bank of America and Citigroup joined in committing to PCAF in advance of its launch.

“PCAF’s methodology will be a key tool to measuring carbon emissions, enabling climate risk management, and helping drive low-carbon product development,” says Audrey Choi, Chief Sustainability Officer at Morgan Stanley.

As part of the PCAF initiative, 86 financial institutions — representing $17.5 trillion in total assets — have committed to measuring and reporting the greenhouse gas emissions associated with loans and investments. The PCAF Standard — created in collaboration with 16 member institutions over the past year — aims to be a key resource for the financial sector in advancing its climate goals.

As pressure has mounted on the financial sector to reduce its contribution to the climate crisis, investors have urged banks to use a standardized approach to measure and transparently disclose their financed emissions as a critical step to reducing those emissions. For instance, BlackRock — for all its industry-leading proclamations on the importance of sustainability (it even put over 200 of its clients on notice this summer for their failure to live up to its standards on climate action) — remains the largest investor in fossil fuels and companies driving deforestation around the world. BlackRock CEO Larry Fink has long been vocal on the need for social and environmental responsibility on the part of the corporate world; but climate activists, investors, legislators and thought leaders have been just as vocal about BlackRock’s continued unwillingness to put its money where Fink’s mouth is on these issues. Perhaps, resources such as CPAF’s new Standard will help the world’s largest asset manager to clarify its standing on sustainability issues, and quantify the amount of climate-changing emissions and activities it continues to support.

As AYS president Danielle Fugere points out: “Measuring and disclosing total financed emissions is the critical first step for banks to understand their climate impact, and for banks and investors to understand progress in reducing that impact. PCAF has become the globally accepted standard for measuring and disclosing results along this path. We hope to see all major banks join PCAF and begin the work necessary to achieve net-zero financed emissions.”

PCAF says it will continue to work with financial institutions providing technical support to implement the Standard globally. In 2021, the group will develop additional asset class methods and publish case studies in the Standard.