Systemic banks: black boxes on green issues

Less talk and more action needed around climate disclosures linked to carbon emissions

In recent years, global systemically important banks (G-Sibs) have done much to underscore their green values – often facing greenwashing allegations – but fell short of properly disclosing the climate impact of their portfolios.

Announcing the latest sustainability report in 2020, Goldman Sachs’ chief executive officer David Solomon said sustainability was not an offshoot of the bank’s business, “it is our business”.

Bank of America’s vice-chair Anne Finucane echoed the sentiment earlier this year, arguing it was critical to “leverage all parts of our business – beyond our direct operations – in order to accelerate the transition to a net-zero global economy”.

However, many systemic banks have so far focused on the risks climate change might pose to their business, without focusing on how they are financing the problem themselves.

The Task Force on Climate-Related Financial Disclosures gives banks and other financial institutions an out from this behaviour, by encouraging them to disclose their own financed emissions.

Established by the Financial Stability Board in 2017, the TCFD aims to improve firms’ climate disclosures, including their greenhouse gas emissions, which need to hit net-zero by 2050 if the world is to limit global warming to 1.5°C. Twenty-nine out of the 30 G-Sibs have already signed the TCFD. Unfortunately, 17 of them are yet to publish their financed emissions, Risk Quantum analysis found.

By their own admission, while banks’ commitment to disclose those metrics may be there, the lack of data availability and a multitude of different methodologies make the task harder than it already is.

“As we begin this path towards reliable and comparable disclosures, private and public sector entities are recognising the significant data challenges that exist,” Erik Soderberg, head of Deutsche Bank’s regulatory affairs in the Americas, wrote to the Securities and Exchange Commission in July.

As one interim solution to the data collection problem, and to address the fact many clients do not yet measure their own emissions, Standard Chartered supplemented its financed emissions disclosures and targets with estimates of client emissions based on statistical regression analysis at sector level.

But, as the clock keeps ticking, this is far from being enough. First, banks should standardise the unit of choice for their financed emission disclosures. Second, they should extend them to cover not just relative emissions metrics – which make like-for-like comparisons all but impossible – but absolute emissions too.

Only at that point will banks align their disclosures and be held accountable for their contributions to climate change. Until then, the accusations of greenwashing will continue.