Weekly round-up: December 7-11

The top five climate risk stories this week

Climate Risk Review’s Monday newsletter, and Wednesday’s ‘Inside Climate Disclosures’ series, are for paying subscribers only. This week, digging into the challenges facing small banks on climate disclosure, and a deep-dive into Bank of America’s TCFD report. You can upgrade your subscription here:

1) Big banks win ‘A list’ status on climate disclosure  

Twenty-eight financial institutions were awarded top marks on their climate-related disclosures by non-profit CDP in its annual corporate rankings.

Banks including US giants Bank of America and Goldman Sachs won a place on the group’s coveted ‘A list’ for climate change, which is reserved for those companies leading on environmental transparency and action. 

However, the top 28 represent less than 4% of total financial institutions included in the CDP survey. Over half of the 745 financial firms covered scored an ‘F’, meaning they failed to provide the CDP with enough data to be properly evaluated.

Source: CDP. Does not include institutions identified as subsidiaries/affiliates of other firms whose parent company provided the required response.

Of the 30 global systemically important banks (G-Sibs), five received ‘A’ grades: Bank of America, BNY Mellon, Goldman Sachs, ING and UBS. Ten improved their scores on 2019, fifteen saw no change, and five did worse. The lowest-scoring G-Sibs were all lenders in China: Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China.

Of the over 5,800 corporates scored by CDP, less than 5% made the ‘A’ list. A total of 9,600 disclosed through CDP, up 14% on 2019.

The group added that more companies scored highly for climate change “largely because more companies are choosing to be transparent by disclosing data”.

2) Climate risk metrics agree on most vulnerable companies

Different climate risk indicators tend to concur on those companies that are most threatened by the transition to a low-carbon economy, but offer divergent assessments of other firms, a international economic policy think tank has found.

Researchers with the Switzerland-based Council on Economic Policies (CEP) assessed the climate metrics for over 200 European corporates produced by 13 leading tool providers, including Carbone 4, the Cambridge Institute for Sustainability Leadership, MSCI CarbonDelta and Vivid Economics.

Each tool’s output was translated into a standardised score so that metrics expressed in different units and scales could be compared. Across the sample of firms, it was found that the separate risk indicators could gauge the transition risks faced by the same firm very differently. However, the indicators converged on their assessments of the most high-risk and low-risk firms. Tools that used similar underlying methodologies also agreed on their risk assessments more frequently than those using different ones.

The researchers said their findings strengthened the case for financial institutions to incorporate climate risk metrics for their exposures to transition-sensitive companies.

“We recommend asset managers, who are concerned about heterogeneity, to use a set of risk metrics to identify firms that are most and least exposed to transition risks, as risk metrics tend to give a more convergent assessment for these firms. Asset managers and investors can use this information to better manage the risk profile of their portfolio,” they wrote.

3) Top US banks face climate-focused shareholder votes

Investors in Wall Street giants including JP Morgan and Goldman Sachs filed shareholder resolutions pressing them to disclose the greenhouse gas (GHG) emissions of their investing and lending portfolios.

Money managers including Mercy Investment Services, Arjuna Capital, and Boston Common Asset Management teamed up with shareholder advocate As You Sow to file the resolutions, which will be voted on at annual meetings next year. The banks targeted include Bank of America, Citi, Goldman Sachs, JP Morgan and Wells Fargo. 

If passed, these would commit the lenders to publish reports detailing whether, when, and how they will count up and report the GHG footprint of their financing activities. 

“Investors recognize there is no crystal ball showing how to get to net-zero emissions,” said Mary Minette, director of shareholder advocacy at Mercy Investment Services. “We are looking to banks to set strong targets aligned with climate science and create interim steps to get there. They must start now”.

Last year, JP Morgan narrowly defeated a similar resolution put together by As You Sow. The group also held off filing resolutions for the other four banks after they promised to find systems to gauge their financed emissions.

In the year since, Bank of America and Citi have joined the Partnership for Carbon Accounting Financials (PCAF), a coalition of banks committed to measuring and disclosing the carbon footprint of their portfolios. JP Morgan and Morgan Stanley have also pledged to shrink the emissions they finance. However, none of the five banks have laid out a clear, credible plan to reduce these in line with the Paris Agreement’s 1.5°C warming goal.

4) New York pension fund vows to decarbonise $266 billion portfolio

New York State’s pension fund — the US’s third-largest — will transition its portfolio to net zero greenhouse gas (GHG) emissions by 2040, the state comptroller said on December 9

The fund plans to divest from those companies that do not pass “transition readiness” standards. As a first step, it will complete within the next four years a review of its energy sector investments against these standards. The strategy is intended to guard the fund, its more than one million members, and taxpayers from losses due to climate change.

“Achieving net-zero carbon emissions by 2040 will put the Fund in a strong position for the future mapped out in the Paris Agreement,” said state comptroller Thomas P. DiNapoli. “We continue to assess energy sector companies in our portfolio for their future ability to provide investment returns in light of the global consensus on climate change. Those that fail to meet our minimum standards may be removed from our portfolio. Divestment is a last resort, but it is an investment tool we can apply to companies that consistently put our investment’s long-term value at risk,” he added.

Earlier this year, the fund dropped its holdings in 22 thermal coal companies following the implementation of its Climate Action Plan in 2019, which committed it to formally integrating climate risk assessment and engagement into its investment processes.

In 2019, the fund held around $12 billion in fossil fuel companies, according to analysis of public data by #DivestNY, a climate campaign group.

Separately, on December 11, asset managers representing over $12 trillion in assets pledged to put their money into investments aligned with net zero emissions by 2050 or sooner. 

The newly-formed Net Zero Asset Managers Initiative, which includes top investors Fidelity, Legal & General Investment Management and UBS Asset Management, collectively made nine commitments to debarbonise their portfolios. These include setting interim targets for the amount of assets they will shift in line with the net zero goal, implementing a “stewardship and engagement strategy” with investees and producing reports in line with the Task Force on Climate-related Financial Disclosures.  

5) Climate-conscious banks among those funding most carbon-intensive energy projects

Fossil fuel projects that could blow the world’s chances of limiting global warming are being bankrolled by just a handful of leading lenders — many of which have recently pledged to decarbonise their portfolios.

Eighteen climate campaign groups issued a report on December 10 identifying 12 oil, gas and coal initiatives that would collectively consume almost half of the remaining carbon budget for limiting warming to 1.5°C with a 50% probability. 

Twenty banks provide more than half their funding: $949 billion out of a total $1.6 trillion. These include Barclays and HSBC, which both pledged to align their portfolios with net zero emissions by 2050 earlier this year. 

JP Morgan, which said it would adopt a financing commitment in line with the Paris Agreement in October, and Bank of America and Citi — both members of the Partnership for Carbon Accounting and Financials (PCAF) — are also among the top lenders.

The report also highlighted the 20 money managers with the most invested in the fossil fuel firms steering these projects. BlackRock topped the list with $110 billion of stock and bond holdings, with Vanguard coming in second with $104 billion.

The campaign groups said the findings showed that “the finance industry is failing to align its business model with the Paris Agreement”. They added that if the firms failed to divest from these projects, then “their sustainability announcements clearly ring hollow”.

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