Reporting and opinion by Mathew Carr
Nov. 27, 2023 — I want to start by saying it’s not easy to measure the climate impact of a bank’s portfolio of corporate loans, nor an insurer’s fossil fuel investments (to name just two of many examples).
The Science Based Targets Initiative deserves credit for tackling the climate impact of a crucial segment of the global economy – the financial institutions that allocate capital toward future projects.
This is an area that elected officials have ignored for far-too long. Banks and insurers are underregulated (they might say otherwise). They’ve been allowed to make trillions of dollars financing investments that are ruining the climate and wrecking nature and putting our way of life at risk. They also stoke geopolitical tension and war.
The SBTI’s attempts to put a stop to the bad behavior is impressive and I can tell it’s taken a lot of work — see the 30 “pilot pages” below, version 2, published last week.
After my initial read, here’s where I have some doubts and concerns (just a few examples) [SBTi folks please message me at mathew@carrzee.net if you want to respond to my analysis]:
One
The guidance on climate targets for scope-three emissions [generated by the bank/finance customers] is a little colonialistic.
It unnecessarily separates coal, oil and natural gas …and gives special treatment to gas and especially oil.
I reckon co2 emissions per unit of fuel (whatever fuel) should be used. The bad thing for the climate is the heat-tapping gas produced and vented into the atmosphere. Coal is not a bad thing in itself if the emissions are captured and stored. Same for oil and natural gas.
The disclosure guidance gives a big loophole to oil. See this from page 22 for example:
——–
Breakdown (at least by sector) of total absolute GHG emissions (scopes
1, 2, and 3) attributed to the Financial Institution’s loans, investments and assets under
management in projects and companies (as defined in the Boundary
section of this method) in the (i) coal sector separately; and (ii) oil and
gas sectors together or separately;
———–
So coal emissions have to be disclosed separately; oil and gas can be meshed together. This disadvantages poorer nations relying on coal, the cheapest fossil fuel. It’s quite outrageous in my opinion that natural gas and oil can be meshed together because emissions from natgas are much lower than oil at the point where they are burned, for each unit of energy. Production emissions also need to be accounted for.
If anything, coal and oil should be grouped together.
Also, the US is the biggest producer of oil and natural gas. I, frankly, think something’s still off in that the guidance seems to be swayed toward granting benefits to US/oil-producer country interests especially, but also against natgas producers /users. Europe and US have already cut back dramatically on coal use, for instance. They are big gas sellers.
These mistakes / confusions by SBTi slow climate action and if they are deliberate, it’s a serious worry.
This part of the guidance is, therefore, a little colonialistic – it lacks an appropriate push toward climate justice, where the world’s vulnerable should be getting the benefit of any loopholes, not the rich who have mostly caused the damage.
Two
The structure of the section that encourages financial institutions to stop financing fossil fuels at all … will ALSO ENCOURAGE BANKS AND INSURERS TO DELAY SUBMITTING A TARGET FOR SBTi APPROVAL.
Under the SBTi program, submitting a target is voluntary.
See this from page 22:
—–
Arrest: FIs [financial institutions] shall commit, via a publicly available policy published prior to
submission of the FI’s science-based target, to the immediate cessation of:
— All new financial services to projects and companies (as defined in the
Boundary section of this method) involved in new coal mines,
extensions/expansions of coal mines, or new unabated coal-fired power
plants (inclusive of electric utilities and industrial use cases), with the
exception of new financing for permanent decommissioning of
production activities and capacity; and
— All new financial services to new long-lead time upstream oil and gas
projects (as defined in the Boundary section of this method) and
mid-stream infrastructure dedicated to new long-lead time upstream oil
and gas projects. For target validation purposes, five years (from the
date of target submission) will be used as the threshold to define
long-lead time.
Note, coal does not benefit from the “long-lead time” language. Only oil and gas. Therefore, as a bank, I would favor financing oil and gas in order to benefit from the language.
Further, if I’m a financial institution, I’ll delay my target submission to SBTi so I can finance some “long-lead time” dirty projects in the meantime, won’t I?
That’s why the guidance is a little “predatory delay”. It seems to reward delay at a moment in history where we need to be speeding climate action.
The only excuse for delay should be projects that occur in emerging countries or least-developed one, or ones that capture and store emissions.
Three
There are also vast chunks of the global economy that won’t be covered by the guidance [see table one — the big one]. In some cases other rules and regulations and programs will probably do the climate-protection work in these cases, but it’s still a worry for me.
Motor-vehicle loans and other consumer loans are out of scope, for instance. Whole industries such as real estate seem to be handled under what’s called a Sectoral Decarbonization Approach.
Four
There seems to be bias against technologies that remove co2 from the atmosphere temporarily (eg biochar). This bias will also benefit oil giants and hurt farmers and other landlords.
I could go on, but to leave on the hopeful note, let’s look at the last paragraph of the guidance, related to the action plan to achieve targets:
“Financial Institution A” will implement the following strategy and actions to achieve its targets:
● Example: “Financial Institution A” aims to steer its [XX dollar amount] corporate equity, bonds, and loan book
in power generation, steel, cement, and aviation through actively supporting clients’
zero-carbon transformation. For example, it will offer more favorable interest rates to
borrowers that set and stay on track to meet ambitious climate goals. FI A selected these
actions because [add reasons].
The clear lesson here is …if you want cheaper finance, go green…and I’m not arguing with that (if it happens).
Overall, while admirable, this SBTi criteria demonstrates the need for hard law to change bank behavior, deployed across the world in a fashion that’s as consistent as possible. A global carbon price and tightening GHG targets would be a good start.
