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Investment banks debate underwriting carbon footprint

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2023-07-10

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Some of the world's largest investment banks have found themselves embroiled in a debate over the inclusion of their underwriting activity in net zero targets, posing a threat to their progress on decarbonisation. As part of a standard-setting group led by Barclays and Morgan Stanley, these banks have been engaged in discussions and voting on how to measure the carbon footprint of underwriting deals. However, infighting and disagreements over the past year have caused delays in the publication of the first voluntary rule book on the matter.

"Investment banks think there's a lot of double standards taking place, with banks hyperinflating green targets and on the other hand fishing for a low weighting to be adopted elsewhere," said Jeanne Martin, head of the banking standards team at responsible investment charity ShareAction, criticizing the potential hypocrisy in the debate.

Recent negotiations reached a crucial point during an online meeting, ruling out the controversial option of a 17% responsibility weighting, but failing to achieve a consensus. Banks have been casting votes on weightings via email this week, with a Friday deadline for submissions.

"We think there’s a lot of double standards taking place, with banks hyperinflating green targets and on the other hand fishing for a low weighting to be adopted elsewhere," added Martin, highlighting the conflicting approaches.

HSBC, a member of the working group, has opted not to publish underwriting emissions data until a methodology is agreed upon. Last year, HSBC used a 100% weighting in its one-off publication of underwriting emissions, revealing 29.5 million tonnes of carbon and equivalent gases associated with its capital markets activity in 2019.

Tensions have also arisen over whether to combine decarbonisation targets for underwriting with existing net zero goals for lending by sector, such as oil and gas. The Science-Based Targets Initiative (SBTI), which validates banks' net zero goals, has indicated its potential rejection of joint targets that assign a lower weighting to underwriting than lending.

"If banks bundle loan and underwriting emissions calculated using separate methodologies, it would amount to 'greenwashing'," warned ShareAction's Jeanne Martin, emphasizing the need for transparent and consistent accounting practices.

The outcome of the ongoing debate will have significant implications for investment banks' ability to align with decarbonisation goals and contribute to the transition towards a sustainable future.

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