• Banks need to be fully transparent about emissions tied to the financial services, the fund says.
• The object is to make the financial sector more accountable in the fight against climate change.
• Investors will understand how much of a financial institution's revenue is excluded from emissions reporting.

Norway’s $1.9 trillion wealth fund has told banks to be more transparent about their business activities that contribute to carbon emissions.

The fund, which is managed by Norges Bank Investment Management (NBIM), said financial institutions, mainly top banks, are not disclosing the revenue they earn from activities like lending and bond underwriting when estimating and reporting emissions, which means they are not telling investors how much of a climate impact they have through their businesses.

A large number of banks are not reporting the carbon footprint of their capital markets operations, including funding of fossil fuel companies, says NBIM.

NBIM’s lead policy adviser Jeanne Stampe said: "Investors need to know the potential magnitude of excluded emissions. If banks disclosed the revenues or amounts associated with such exclusions, then investors would get a sense of the relative contribution of excluded activities."

Read More: Norway’s $1.9 T Wealth Fund Unmoved by Trump’s ESG Stance: Report

These comments reflect a growing trend among European asset owners to include climate risks in investment decisions. On the flip side, however, the US has been fraught with policy setbacks, leading major Wall Street financial organisations to backtrack from alliances committed to achieving net-zero emissions.

According to Bloomberg, banks have channelled a staggering $6.3 trillion into loans and bonds to fund fossil fuel projects since the Paris Agreement in 2015.

This mollycoddling of high-emitting sectors will lead to global warming reaching 3.1°C by 2100 — a figure scientists warn could trigger irreversible tipping points for the planet.

NBIM is throwing its weight behind a proposal by the International Sustainability Standards Board (ISSB), which requires financial institutions, including banks and insurers, to disclose how much of their business is excluded from current emissions reports, to help investors understand the magnitude of the gap. These standards have already been adopted by countries that account for about 60% of the global economy.

Also Read: Fossil Fuel Financing by Banks Rose Sharply in 2024

Banks and insurers, while responding to the bid, noted that it is not practical to precisely link some financial services, particularly instruments like derivatives, to direct carbon emissions. But ISSB’s Vice-Chair Sue Lloyd commented that even approximate disclosures would signal to investors how much is currently left out.

Capital market operations, including bond financing, take up most of the pie with regard to fossil fuel financing by banks, research shows. Another report attributes the $162 billion rise in fossil fuel funding in 2023 to bond financing.

Although groups like the Partnership for Carbon Accounting Financials (PCAF) are taking measures to standardise reporting in sync with market changes, banks are still not committed to industry-wide disclosure of so-called facilitated emissions.

Angelica Afanador, PCAF’s executive director, commented: "Excluding facilitated emissions will cause a significant loss of useful information, which is required to address the climate problem. It’s not easy, but that isn’t an argument for delay."

Amid growing commotion, some institutions have started taking necessary steps, for example, Citigroup is now accounting for emissions from carmakers, energy, and power sectors in its targets. While JPMorgan and Morgan Stanley have made some disclosures, Wells Fargo gave up its 2050 net-zero goal altogether.

Also Read: UK Banks Prioritise Fossil Fuels Over Green Pledges, Study Finds

Meanwhile, not all banks are part of PCAF. Citigroup, Bank of America, Morgan Stanley, and Barclays are, but Goldman Sachs, Wells Fargo, and many others are not.

Ends/

Searching for sustainability experts to support your business?

Discover our ESG Marketplace, where you'll find over 750 providers offering a wide range of sustainability and ESG services.

Stay informed with our latest Investor News—bringing you regular updates and insights.

Don’t miss our newest ESG Course updates to build your career in ESG and sustainability.

Source: Bloomberg