Daily ESG Briefing: NGO proposes ‘More-Harm-Than-Good-Indicator’ to give context to banks’ green activities

The latest developments in sustainable finance

Investment banking arms of global banks are ignoring the environmental impacts of the bonds they underwrite, despite adopting Net Zero targets, according to WWF. A report published by the NGO identified almost $3.6tn of fossil fuel debt, facilitated by the largest 30 investment banks over the past five years – generating nearly twice the fees of the green transactions they arrange or underwrite. The report proposed a new metric, the ‘More-Harm-Than-Good-Indicator’, which compares the volume of capital arranged or underwritten that is fossil-fuel-related against green-labelled debt.

The head of Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, has warned regulated financial institutions to expect new disclosure requirements on climate. In his first speech since taking the role in June, Peter Routledge said this week: “Climate risk disclosures and climate risk management by Canadian FRFIs [federally-regulated banks] will expand materially over my term as Superintendent.” OSFI is due to publish the results of a consultation on how banks measure and manage climate risks this autumn.

Some investors are reporting near-zero portfolio emissions after shorting carbon intensive holdings, but this tactic is “misleading”, according to ISS. An analyst note from the proxy advisor addressed the increasingly popular approach, where investors who sell borrowed shares to take a short position, report a reduction of portfolio emissions. “The ‘shorter’ may be removing theoretical emissions from the balance sheet, but not removing emissions from the atmosphere – by going short on Volkswagen you are not removing cars from the road!” warned ISS. 

Tokio Marine will stop underwriting and financing new thermal coal mining projects from October, becoming the first Japanese non-life insurer to do so. The commitment will apply to both domestic and foreign projects. However, the insurer noted that it may “grant exceptions” to projects which utilise “innovative technology” such as carbon capture. Tokio Marine has previously pledged to stop underwriting new coal-fired power generation projects.

CDC Group, the UK’s development finance institution, has announced that it will allocate 30% of its investments to climate finance over the next five years. All new investments made by CDC, which has a £5.2bn portfolio and invested £1.22bn in 2020, will be aligned with the Paris Agreement, the government said.