Citi, BofA to disclose how loans contribute to climate change

Register now

Citigroup and Bank of America have joined Morgan Stanley among the roster of global banks pledging to measure and disclose the impact their lending decisions have on climate change.

As members of the Partnership for Carbon Accounting Financials, the banks will also collaborate to establish industrywide standards for measuring the climate risk associated with lending activities. The PCAF, which has nearly 70 members that hold more than $9 trillion of assets worldwide, aims to push the financial industry to meet the goals of the Paris climate accord.

“By joining PCAF, we are helping to drive a consistent framework for institutions to measure financed emissions, as well as providing a useful tool in the management of these emissions, which is a critical component when addressing climate change,” Anne Finucane, vice chairman at Bank of America, said in a press release.

“If there’s one lesson to be learned from the COVID-19 pandemic, it is that our economic and physical health and resilience, our environment and our social stability are inextricably linked,” said Citigroup CEO Michael Corbat.
“If there’s one lesson to be learned from the COVID-19 pandemic, it is that our economic and physical health and resilience, our environment and our social stability are inextricably linked,” said Citigroup CEO Michael Corbat.

The two announcements, issued separately on Wednesday, would make Bank of America and Citigroup the second and third large U.S. financial institutions to join the group, and Citi’s chief sustainability officer, Valerie Smith, said she believes other large banks will soon follow suit.

Earlier this month Morgan Stanley became the first large U.S.-based bank to join the partnership. The $5.7 billion-asset Amalgamated Bank in New York joined PCAF in 2018.

“I expect we’re going to see other institutions join on in the near term because this really does need to be a collaborative effort,” Smith said in an interview Wednesday.

Citigroup also pledged to finance $250 billion in low-carbon projects as part of a new five-year sustainability commitment announced Wednesday. The company said it wants to develop new “innovative financing structures” to fund activities in areas like renewable energy, water conservation and sustainable agriculture that will help accelerate a broader transition to a low-carbon economy.

“If there’s one lesson to be learned from the COVID-19 pandemic, it is that our economic and physical health and resilience, our environment and our social stability are inextricably linked,” said Michael Corbat, Citi's CEO. Environmental, social and governance issues have “been front and center in Citi’s response to this health crisis, and evermore present in conversations with clients and partners.”

A number of banks have carved out niches in lending to renewable forms of energy or incorporated clean energy into their own operations, but few in North America have gone so far as to examine their lending practices to see how they might be contributing to climate change.

Stress testing for climate risk and disclosing the carbon footprint of lending activities is still more common in Europe, where regulators recently told the banks they supervise to consider environmental risks in their lending decisions.

Large North American banks have still resisted calls by investors to disclose the impact of their lending activities, though. The four largest U.S.-based banks, JPMorgan Chase, Wells Fargo, Citi and Bank of America, are also the world’s largest financiers of fossil fuel exploration, according to an analysis by the Rainforest Action Network.

In its announcement Wednesday, Citi said it will test its portfolios for transition risks and physical risks associated with climate change in 1.5- and 2-degree Celsius warming scenarios. Those thresholds are notable because scientists broadly agree that climate-related threats to human and natural systems will rise significantly with a 1.5-degree increase in average global temperatures. Citi will evaluate its own portfolios in line with recommendations by the Task Force on Climate-related Financial Disclosures.

Citigroup also set new internal goals for energy efficiency and waste reduction in its own operations. The company said it intends to meet its goal of sourcing 100% renewable electricity across its global footprint before the year’s end. It also said that since 2005 it has reduced its energy use by the equivalent of about half a million cars on the road for a year.

For reprint and licensing requests for this article, click here.
ESG Climate change Citigroup Michael Corbat Bank of America Anne Finucane
MORE FROM AMERICAN BANKER