SINGAPORE (Sept 16): Behind the scenes at some of the world’s biggest banks, small teams of employees are busy trying to calculate what might prove to be one of the most important numbers any financial institution will ever disclose: how much the assets on their balance sheet are contributing to global warming.
One of those people is Kaitlin Crouch at ING Groep. For the past five years, she has been dissecting transactions — from corporate loans to residential mortgages — to test ways of measuring the Dutch lender’s overall carbon footprint.
It is an elusive figure. Data provided by the bank’s clients, which range from automakers to energy producers, is often inaccurate, and it is possible to double or triple count the same emissions when different parts of the bank work with the same client. “It quickly becomes a very daunting and sometimes demotivating topic once you start to understand the level of complexity,” Crouch says.
Doing the bookkeeping on carbon may not be glamorous work, but banks are slowly seeing the need for it. The United Nations last year warned that without dramatic new limits on global temperature increases in the next decade, humanity could see food scarcity, mass migrations and instability as soon as 2040. For banks, one concern 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 warming risks.
He was referring to economist Hyman Minsky, who argued that financial crises 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. “It quickly becomes a very daunting and sometimes demotivating topic”.
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.
Banks’ own operations, such as corporate offices and employee travel, are not 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.
Financial institutions have trailed other industries in emissions disclosure, and they must catch up quickly, says Olaf Weber, a professor at Canada’s University of Waterloo who studies the financial industry’s impact on sustainable development. He predicts emissions data could be a key performance indicator “within just five years”.
ING is among a group of European banks that have said they will align their lending with the goal of keeping global warming below 2°C.
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 generate relative to the amount of financing the bank has provided them.
Crouch says she is sharing the lessons she has learnt 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”.
