◼ FINANCE Bloomberg Businessweek September 16, 201923that without dramatic new limits on global tem-
perature increases in the next decade, human-
ity could see food scarcity, mass migrations, and
instability as soon as 2040. For banks, one con-
cern is that if society ignores the problem and is
later forced to transition quickly to a low-carbon
economy, companies and assets that produce a lot
of emissions might see a sudden collapse in value.
Bank of England Governor Mark Carney has
warned that financial companies could face a
“climate Minsky moment” unless they begin
to disclose their exposure to global warm-
ing risks. He was referring to the economist
Hyman Minsky, who argued that financial cri-
ses are caused by hidden risks building up on
balance sheets. (Think dodgy mortgages.) The
idea is that climate change could be one of those
unaccounted-for vulnerabilities.
Now, after record-high temperatures ravaged
Europe in July and California wildfires led to
the January bankruptcy of utility PG&E Corp.,
dozens of global banks, insurers, and pension
plans seem inclined to listen. They’ve announced
plans to join other companies such as Walmart
Inc. and Adobe Inc. in publicly setting tar-
gets for the first time to reduce their emissions
in line with the international Paris Agreement
on climate. (Michael Bloomberg, founder and
majority owner of Bloomberg LP, which owns
Bloomberg Businessweek, is chairman of the Task
Force on Climate-related Financial Disclosures,
an effort to encourage corporate disclosure of
environmental risk.)
Banks’ own operations, such as corporate offices
and employee travel, aren’t the main issue when it
comes to their greenhouse gas footprint. Climate
activists are focused more on the emissions that
banks help make possible with their loans and
other services to companies. “Unless banking fun-
damentally changes its lending and underwriting
practices with high-carbon emitters, it’s only pay-
ing lip service to Paris,” says Louise Rouse, a U.K.-
based consultant to nonprofit campaign groups on
climate change and finance. Many banks, reluctant
to declare hefty carbon footprints, contend they
shouldn’t have to shoulder responsibility for their
clients’ emissions.
Financial institutions have trailed other
i ndustries in emissions disclosure, and they
must catch up quickly, says Olaf Weber, a profes-
sor at Canada’s University of Waterloo who stud-
ies the financial industry’s impact on sustainable
development. He predicts emissions data could
be a key performance indicator “within just five
years.” In the U.S., where activists say PresidentTrump’s 2017 withdrawal from the Paris accord
gave U.S. banks license to drag their feet, prog-
ress has been slow. French and Dutch banks have
been the first to act.
ING is among a group of European banks that
have said they will align their lending with the goal
of keeping global warming below 2C (3.6F). Crouch
is a Florida native based in the Netherlands—two
places at risk from rising sea levels. She leads a
five-person team within ING’s global sustainability
unit. Her group examines clients’ physical assets,
their output, and future production capacity. Then
they calculate the emissions those businesses gen-
erate relative to the amount of financing the bank
has provided them.
Beyond the challenge of tallying emissions,
there’s the much more daunting task of cutting
them. About 45 financial institutions globally,
including the U.K.’s HSBC Holdings Inc. and
France’s Société Générale SA, have committed to
taking part in the Science Based Targets Initiative,
a voluntary effort that sets reduction targets. Only
four U.S. companies have made the commitment:
insurer MetLife, asset manager Principal Financial
Group, Hannon Armstrong, an investor in clean
energy projects, and FullCycle Energy, a private
equity firm.
Reporting should be mandatory, says Den
Patten, a professor at Illinois State University’s
college of business who focuses on corporate
social responsibility and environmental
disclosure. “The evidence suggests that volun-
tary disclosure regimes are not useful for eliciting
comparable information and are used for image
manipulation,” he says.
Despite ING’s emissions-measuring efforts, the
bank is the Netherlands’ biggest lender to shale-
gas and plastic companies, according to the Dutch
Fair Finance Guide, a group that includes local
chapters of Amnesty International and Friends
of the Earth. ING spokesman Daan Wentholt says
the bank no longer cooperates with research by
the Fair Finance Guide because of concerns about
its methodology.
Crouch says she’s sharing the lessons she’s
learned about measuring emissions with
counterparts at other banks. And despite the
mammoth task of measuring her bank’s carbon
footprint, she remains upbeat. That ING’s board
has provided resources to the project, she says,
“shows how this is going beyond a group of
tree-huggers.” �Saijel Kishan“It quickly
becomes
a very
daunting and
sometimes
demotivating
topic ”THE BOTTOM LINE Climate change is a major economic risk, but
it’s not yet clear how to account for it. Banks are just starting to find
ways to identify the vulnerabilities in their own businesses.◼ FINANCE Bloomberg Businessweek September16, 2019
23thatwithoutdramaticnewlimitsonglobaltem-
peratureincreasesinthenextdecade,human-
itycouldseefoodscarcity,massmigrations,and
instabilityassoonas2040.Forbanks,onecon-
cernis thatif societyignorestheproblemandis
laterforcedtotransitionquicklytoa low-carbon
economy,companiesandassetsthatproducea lot
ofemissionsmightseea suddencollapseinvalue.
BankofEnglandGovernorMarkCarneyhas
warnedthatfinancialcompaniescouldfacea
“climateMinskymoment”unless theybegin
to disclose their exposure to global warm-
ingrisks.Hewas referringto theeconomist
HymanMinsky,whoarguedthatfinancialcri-
sesarecausedbyhiddenrisksbuildingupon
balancesheets.(Thinkdodgymortgages.)The
ideais thatclimatechangecouldbeoneofthose
unaccounted-forvulnerabilities.
Now,afterrecord-hightemperaturesravaged
EuropeinJulyandCaliforniawildfiresledto
theJanuarybankruptcyofutilityPG&ECorp.,
dozensofglobalbanks,insurers,andpension
plansseeminclinedtolisten.They’veannounced
planstojoinothercompaniessuchasWalmart
Inc. and Adobe Inc. in publicly setting tar-
getsforthefirsttimetoreducetheiremissions
inlinewiththeinternationalParisAgreement
onclimate.(MichaelBloomberg,founderand
majorityownerofBloombergLP,whichowns
BloombergBusinessweek, is chairmanoftheTask
ForceonClimate-relatedFinancialDisclosures,
anefforttoencouragecorporatedisclosureof
environmentalrisk.)
Banks’ownoperations,suchascorporateoffices
andemployeetravel,aren’tthemainissuewhenit
comestotheirgreenhousegasfootprint.Climate
activistsarefocusedmoreontheemissionsthat
bankshelpmakepossiblewiththeirloansand
otherservicestocompanies.“Unlessbankingfun-
damentallychangesitslendingandunderwriting
practiceswithhigh-carbonemitters,it’sonlypay-
inglipservicetoParis,”saysLouiseRouse,a U.K.-
basedconsultanttononprofitcampaigngroupson
climatechangeandfinance.Manybanks,reluctant
todeclareheftycarbonfootprints,contendthey
shouldn’thavetoshoulderresponsibilityfortheir
clients’emissions.
Financial institutions have trailed other
industriesin emissionsdisclosure, and they
mustcatchupquickly,saysOlafWeber,a profes-
soratCanada’sUniversityofWaterloowhostud-
iesthefinancialindustry’simpactonsustainable
development.Hepredictsemissionsdatacould
bea keyperformance indicator “within just five
years.” In the U.S., where activists say President
Trump’s 2017 withdrawal from the Paris accord
gaveU.S.bankslicensetodragtheirfeet,prog-
resshasbeenslow.FrenchandDutchbankshave
beenthefirstto act.
ING is among a group of European banks that
have said they will align their lending with the goal
of keeping global warming below 2C (3.6F). Crouch
is a Florida native based in the Netherlands—two
places at risk from rising sea levels. She leads a
five-person team within ING’s global sustainability
unit. Her group examines clients’ physical assets,
their output, and future production capacity. Then
they calculate the emissions those businesses gen-
eraterelativetotheamountoffinancingthebank
hasprovidedthem.
Beyondthechallengeoftallyingemissions,
there’sthemuchmoredauntingtaskofcutting
them.About 45 financialinstitutionsglobally,
including theU.K.’s HSBCHoldings Inc. and
France’sSociétéGénéraleSA,havecommittedto
takingpartintheScienceBasedTargetsInitiative,
a voluntaryeffortthatsetsreductiontargets.Only
fourU.S.companieshavemadethecommitment:
insurerMetLife,assetmanagerPrincipalFinancial
Group,HannonArmstrong,aninvestorinclean
energyprojects,andFullCycleEnergy,a private
equityfirm.
Reportingshouldbemandatory, saysDen
Patten,a professoratIllinoisStateUniversity’s
collegeofbusinesswhofocusesoncorporate
social responsibility and environmental
disclosure.“Theevidencesuggeststhatvolun-
tarydisclosureregimesarenotusefulforeliciting
comparableinformationandareusedforimage
manipulation,”hesays.
DespiteING’semissions-measuringefforts,the
bankis theNetherlands’biggestlendertoshale-
gasandplasticcompanies,accordingtotheDutch
FairFinanceGuide,a groupthatincludeslocal
chaptersofAmnestyInternationalandFriends
oftheEarth.INGspokesmanDaanWentholtsays
thebanknolongercooperateswithresearchby
theFairFinanceGuidebecauseofconcernsabout
itsmethodology.
Crouchsaysshe’ssharingthelessonsshe’s
learned about measuring emissions with
counterpartsatotherbanks.Anddespitethe
mammothtaskofmeasuringherbank’scarbon
footprint, she remains upbeat. That ING’s board
has provided resources to the project, she says,
“shows how this is going beyond a group of
tree-huggers.”�SaijelKishan“It quickly
becomes
a very
daunting and
sometimes
demotivating
topic ”THE BOTTOM LINE Climate change is a major economic risk, but
it’s not yet clear how to account for it. Banks are just starting to find
ways to identify the vulnerabilities in their own businesses.