Banks will subject $2.9 trillion in assets to climate testing

Mortgages and other products will be assessed using a global standard for the first time, allowing banks to encourage behaviour change

Greening the financial sector is a crucial step to achieving the Paris Agreement goals (Photo: Kleon3)

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More than 50 financial institutions representing $2.9 trillion in assets have pledged to unveil the carbon impact of their investments and loans on Monday.

The announcement came hours before the UN climate action summit convened by Antonio Guterres got under way in New York.

The cohort of banks, which include the US Amalgamated Bank and the Dutch ASN and Triodos Banks, will assess and disclose the greenhouse gas emissions generated by their financial products as part of the industry-led initiative Partnership for Carbon Accounting Financials (PCAF).

While the sum is but a fragment of the $386 trillion-high global stock of financial capital, it represents the single largest carbon disclosure initiative within the financial sector. It also marks the first time the financial sector will apply a global carbon accounting standard, with methods previously specific to the US or Netherlands.

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The PCAF will enable investors to judge whether their portfolios are compatible with the Paris Agreement, which aims to limit warming to “well below” 2C and make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”.

The methodology will apply to a wide range of assets, including sovereign bonds, listed equity, mortgages, real estate and corporate debt.

“PCAF enables the financial industry to take meaningful, collective and global action to combat climate change,” head of Triodos bank Peter Blom said. “Knowing the emissions of their loans and investments means banks can be transparent with their stakeholders. They can better understand and manage the risk of the climate emergency for their business. And, crucially, they can make informed decisions that limit the negative impact, and increase the positive impact, of their financial decisions on the climate.”

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“Our experience in the Netherlands is that measuring and tracking climate impact drives concrete action and change,” Kees van Dijkhuizen CEO of the Dutch ABN AMRO said. “At ABN AMRO, PCAF helped us understand that our 800,000 residential mortgages are one of the areas that have the highest carbon impact. With that knowledge, we now promote mortgages that incentivize customers to take energy efficiency measures. Climate action like that is not only good for business – but is a duty to our clients, the planet, and to future generations.”

Founded during the Paris Agreement in 2015, PCAF has assessed $1.2 trillion worth of assets since 2018.

Read more on: Climate Finance | UN Climate Action Summit 2019