PCAF proposes global standard on carbon accounting after buy-in from US banking giants

New standard a ‘key tool’ to help financial institutions get to grips with finance emissions

The Partnership for Carbon Accounting Financials (PCAF) has launched a consultation on the first global carbon accounting standard, which offers financial institutions “a common set of robust carbon accounting methods to assess and track the emissions financed by loans and investments”.

US banking heavyweights Morgan Stanley, Bank of America and CitiGroup have all signed up to PCAF in the last couple of weeks, committing to measure and disclose greenhouse gas emissions associated with their lending within three years as required by the initiative – with the ultimate goal being aligned with the Paris Agreement.

Last week, NatWest (formerly RBS) became the first major UK bank to join the initiative.

PCAF was created in 2015 by a group of Dutch financial institutions under the auspices of the Dutch central bank, DNB.

In 2018, it was extended to North America and scaled up globally in 2019. Since its international expansion, PCAF now boasts a membership totalling 70 financial institutions, with collective financial assets of more than $10trn. 

Its new Global Carbon Accounting Standard was developed by a core group of 16 banks and investors, including Robeco, FMO, ABN AMRO, Morgan Stanley, and Bank of America. 

The methodology is based on the Greenhouse Gas Protocol and draws upon carbon accounting methods already used by PCAF members across several countries.  

Six asset classes are covered by the new standard: listed equity and bonds, business loans, commercial real estate, mortgages, motor vehicle loans, and project finance.

The new standard also feeds into the work of other key initiatives such as CDP, Science Based Target initiative and the Task Force on Climate-related Financial Disclosures.

The scale of fossil fuel financing by big banks was highlighted in the recent Banking on Climate Change report, which found that between 2016-19 Morgan Stanley invested more than $91bn in fossil fuels.

Citi and Bank of America were found to be the third and fourth largest financiers, investing $188bn and $157bn, respectively, in oil, gas and coal activities.

The consultation on the new standard runs until 30 September 2020, and seeks feedback from financial institutions, policymakers, regulators, data providers, NGOs, consultants and other interested parties. The final version of it will be published in November of 2020. 

“The Standard provides the means to close a critical gap in the measurement of emissions financed by the financial industry”, said Tjeerd Krumpelman, Global Head of Advisory, Reporting & Engagement at ABN AMRO and member of the PCAF Steering Committee.

"The Standard is a key tool in the arsenal for financial institutions because it helps banks and investors measure their financed emissions, which is the starting point to the process of aligning financial flows with the goals of the Paris Agreement" added Ivan Frishberg, Director of Impact Policy at Amalgamated Bank and Chair of PCAF North America regional team.

Additional reporting by Paul Verney