Bob Eccles, the Harvard professor who is one of the world’s leading academics on sustainability issues, has called for global custody banks to become key players in the fight against climate change.
In a piece entitled The Climate Custodians, written with research partner Tim Youmans, he examines the role the firms – which hold trillions of dollars on behalf of asset owners and companies – could take in mitigating climate change.
“Focusing on the Big Three global custody banks — State Street, BNY Mellon, and JPMorgan Chase — we make the case for large custody banks assuming the role of climate custodians for corporations and institutions,” they write.
Eccles is a professor of management practice at Harvard Business School and Chairman of ESG quant fund Arabesque Partners. He was founding chairman of the Sustainability Accounting Standards Board (SASB) and one of the founders of the International Integrated Reporting Council. Youmans is a researcher at Harvard Business School and an instructor in the MIT Sloan School Family Office Visionary Investing Program.
They argue that the Big Three are “systemically important” to the liquidity and safekeeping of the global economy. But they have been “missing from the conversation” on climate change taking place amongst investors, companies and policy makers. They argue there’s a “strong case” that the climate custody role is not only consistent with — but actually required by — the regulations under which the firms operate.The rationale is that custodians are bank subsidiaries – and that bank boards are required by the US Comptroller of the Currency to consider at least eight audiences, including the global community and the global economy, which Eccles and Youmans reckon confers “planetary breadth”.
The pair have examined the three banks’ corporate governance guidelines for alignment with the OCC’s significant audience requirements for large global custody banks, saying: “We found no statements that acknowledge the audiences of their legally distinct subsidiary custody banks.”
The paper suggests using a CO2/dollar metric that could be tied to individual and aggregate custody assets.
“Adding this single climate-custodial metric to the $75.5trn in assets already being tracked by the Big Three would be a small but powerful first step in elevating the Big Three directors’ role of ensuring their banks have a beneficial influence on the global economy and on the global community.”
This role would be compatible with their safekeeping, settlement, and reporting roles and in alignment with the OCC guidance, it is argued.
And they add it would be in the banks’ economic self-interest to assume the climate custodian role, since their fees are based on custody assets “which are at risk of losing value if climate change goes unchecked”. None of the banks mentioned responded to a request for comment by press time.