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By Benedict Buckley - November 08, 2012
This article was originally posted on the WRI blog, Insights.
The Greenhouse Gas (GHG) Protocol recently partnered with the UNEP Finance Initiative in a critically important endeavor – developing guidance to help the financial sector measure its ”financed emissions” and track reductions. These types of emissions, which are associated with lending and investments, are the most significant part of a financial institution’s carbon footprint.
We are seeking responses to ashort (5 – 10 minute) online surveyto assist us in establishing the content of the new guidance, which will supplement the GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard. The deadline for completing the survey is November 23, 2012.
As risk management experts, it’s essential that financial institutions have the necessary tools to consider the implications of continued investment in, and financing of, carbon-intensive sectors and companies. Some financial institutions have developed their own methodologies for accounting for financed emissions, but there’s a lack of consistency between them. Financial institutions need new guidance like that being developed by GHG Protocol and UNEP to adopt risk-management policies and lending procedures that address climate change in a systematic way across the sector.
Why Does the Financial Sector Need GHG Accounting Guidance?
Public and private sector financial institutions are critical players in the shift to a low-carbon economy. Acting as market makers, capital providers, and advisers, the financial sector can directly affect the growth or decline of both “clean” and “dirty” industries and products.
Many financial institutions now measure the GHG emissions of their own operations – more than two-thirds of financial institutions in the Global 500 reported their scope 1 and 2 emissions to the Carbon Disclosure Project in 2012. However, reporting scope 1 and 2 emissions says little about the full climate change impact of financial institutions because most of their emissions are financed emissions. For example, in 2011, Citi financed one thermal power plant. The bank’s proportional share of the plant’s lifetime emissions (based on the percentage of total project costs financed by Citi) was reported to be between seven and 14 times larger than its total scope 1 and 2 emissions that year.
Establishing a consistent method for calculating financed emissions will enable financial institutions and portfolio investors to better understand how their investment decisions impact climate change, and it can help make the case for directing investments towards lower-carbon options or firms.
Financial sector GHG accounting guidance can also enable financial institutions to evaluate the climate change actions they’ve already taken. For example, as a new Rainforest Action Network report points out, major U.S. banks have publicly committed more than $100 billion to green financing initiatives ($50 billion by Bank of America, $40 billion by Goldman Sachs, and $30 billion by Wells Fargo), but companies don’t currently measure whether these commitments have significantly reduced their portfolio-wide climate impacts. The forthcoming guidance will allow financial institutions to track reductions.
GHG Protocol’s Forthcoming Financial Sector Guidance
The current GHG Protocol Corporate Value Chain (Scope 3) Standard provides a framework for reporting emissions from investments (scope 3, category 15). However, it’s very high-level – financial institutions and investors need supplementary guidance to accurately, consistently, and transparently report on the full emissions impacts from their investments.
The GHG Protocol Financial Sector Guidance will provide financial institutions with the guidance and tools needed to incorporate climate change information into their core business processes. By providing a highly credible, global accounting methodology, the sector can begin moving towards a place where measuring and reporting on financed emissions becomes standard business practice.