Morgan Stanley will become the first major U.S. bank to publicly disclose the how much its loans and investments contribute to climate change, the latest sign that Wall Street giants are beginning to reckon with their role in heating the planet.
The move comes as financial regulators in many countries are considering whether to require greater disclosure from companies about the risks they face from climate change — and as a growing number of shareholders and investors worry about their exposure to fossil fuels that could suffer from future government policies to rein in greenhouse gas emissions.
“This is a journey, and I think that this is an incredibly important piece of it, because as we all know it’s harder to make people respond to something when there’s no data, it’s hard to have data when you don’t have measurement,” Audrey Choi, chief sustainability officer for Morgan Stanley and CEO of its Institute for Sustainable Investing, told POLITICO. “This is an important step towards getting more clarity.”
The bank is joining the Partnership for Carbon Accounting Financials, a global body with 67 financial company members managing $5.3 trillion of assets, that will count the greenhouse gas emissions from projects and investments that are financed by asset managers, banks and other institutions. Morgan Stanley will sit on the group’s steering committee to help deliver a final methodology for financial institutions to follow this fall.
Since 2016, 35 banks have poured $2.7 trillion into fossil fuel projects, according to environmental group Rainforest Action Network — and Morgan Stanley has accounted for nearly $92 billion of that total. Morgan Stanley declined to provide POLITICO details on the number of fossil fuel projects and assets are on its books.
Activists and regulators have begun to shine a spotlight on how banks, insurers and asset managers underwrite projects like pipelines, mines and power plants that contribute to rising temperatures that are fueling more devastating storms, floods and wildfires and that cause billions of dollars in global damages. Those same financial institutions also hold billions in assets that risk becoming “stranded” as nations adopt more aggressive climate policies.
“It’s almost inevitable … that there’s going to be some sort of requirement around the measurement and disclosure around financed emissions,” said Ivan Frishberg, first vice president of sustainable banking at Amalgamated Bank and head of the North American chapter of the carbon partnership that Morgan Stanley is joining.
Giel Linthorst, executive director for the partnership and director of sustainable investment at Navigant, said Morgan Stanley has played a coordinating role with six other major U.S. banks that he hoped would join the initiative in the future, though he did not disclose which banks.
“What I’ve seen with measuring financed emissions is that it really is a game changer to many financial institutions,” Linthorst said. “Showing where emissions are in your portfolio really triggers discussions about what you can do about it.”
A Commodities Future Trading Commission subcommittee made up of asset managers, bankers, insurers and academics is expected to publish a report on climate risks this summer. The San Francisco Federal Reserve has explored how climate change disruptions could send shockwaves through the financial sector. Shareholder pressure, including from institutional investors like BlackRock, the world’s largest asset manager, which is making climate change central to its investing strategy, has also steered the sector.
Capitol Hill, too, has sharpened its focus on the issue. A burgeoning group of Democratic lawmakers has explored requiring banks to conduct stress tests or to build financial buffers to withstand climate-driven shocks.
Morgan Stanley hopes its effort to tally the greenhouse gas emissions from its investments will help it to develop new sustainable investing products for investors, said Matt Slovik, who heads the bank’s global sustainable finance team, noting the company has committed to financing $250 billion of low-carbon solutions by 2030. But he declined to say whether the bank would use the information to perform stress tests of how its portfolio would fare under varying climate scenarios.
Several banks faced resolutions from shareholders this year that would have required greater transparency on emissions resulting from their lending. JPMorgan Chase shareholders narrowly quashed such a measure, which garnered 48.6 percent support, and BlackRock voted down a transparency call, drawing criticism from environmentalists who said the asset manager violated a pledge to back climate change resolutions.
The Partnership for Carbon Accounting Financials, which is hoping to get its methodology approved by the Greenhouse Gas Protocol, the standard established by the World Resources Institute and World Business Council for Sustainable Development, is one of several efforts that have sprung up in recent years to draw companies into tackling climate change.
The Task Force on Climate-related Financial Disclosures, spearheaded by former New York City Mayor Mike Bloomberg and former of Bank of England Governor Mark Carney, has also prodded companies to assess climate risks to their physical facilities as well as so-called transition risks from a world with ambitious greenhouse gas-reduction policies. Many companies are including those results in corporate sustainability reports this year.
CDP, an independent organization that grades companies on environmental, sustainability and governance factors, this year published its first-ever guidelines for financial sector companies to assess the emissions of their lending portfolios.
And the Science Based Targets initiative, an effort from the United Nations Global Compact, World Resources Institute, World Wildlife Fund and CDP that has enrolled nearly 1,000 companies, will publish its guidelines later this year for firms to achieve emissions reduction aligned with keeping the world from heating 2 degrees Celsius above preindustrial levels. That threshold is seen as important to avoid the many of the worst impacts of climate change.
“Measuring financed emissions is broadly understood to be a critical part of the whole ecosystem of climate finance work,” Amalgamated’s Frishberg said. “There’s been a lot of conversations over how to do that over the past year.”