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Major investment banks have been lobbying to exclude certain underwriting activities from net zero targets, causing a debate that could impede progress on decarbonization.
Barclays and Morgan Stanley-led banks in a standard-setting group have been voting on how to measure the carbon footprint of these deals, resulting in a delay of the first voluntary rule book, originally scheduled for release in November.
In 2022, over one-third of the $669 billion financing provided to oil, gas, and coal companies by the world’s largest 60 banks came from underwriting bonds and equities, rather than loans. However, bankers have been hesitant to acknowledge the climate impact of their underwriting work and have not reached a consensus on accounting for the resulting carbon emissions.
A point of contention in recent discussions among bankers has been determining the proportion of emissions linked to underwriting deals for which banks should take responsibility. Some argue for as little as 17 or 33 percent, while others adopt a 100 percent basis, similar to their approach for loan books.
Weighting under 100 percent could lead to accusations of hypocrisy, as investment bankers count every penny raised in “green” bond deals towards their annual green financing targets.
“We believe there are double standards at play, with banks inflating green targets while advocating for a lower weighting in other areas,” said Jeanne Martin, head of the banking standards team at responsible investment charity ShareAction.
Recent online meetings have failed to reach a consensus, and banks are now voting on weightings via email. If a two-thirds majority is not achieved, the decision will be taken to the accounting body’s board of directors.
HSBC, a member of the working group, has stated it will not publish underwriting emissions data until a methodology is agreed upon. When it previously published such data, it used a 100 percent weighting.
Another point of tension has been whether to combine decarbonization targets for underwriting with existing net zero goals for lending by sector, as proposed by some European banks. Joint targets that give underwriting a lower weighting than lending might be rejected by the Science-Based Targets Initiative, a voluntary oversight body.
Combining loan and underwriting emissions calculated with separate methodologies would be considered “greenwashing,” according to ShareAction’s Martin.
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