The BNEF data provide one of the few yardsticks for measuring progress, since hardly any major banks and asset managers provide estimates for the emissions connected with their stock and bond underwriting. But that may soon change. The Partnership for Carbon Accounting Financials, a global alliance of banks and asset managers that develops climate accounting guidelines for financial services, this month backed a first-ever industry standard. That means banks will no longer be able to totally ignore the carbon footprint of their capital-markets activities.
The PCAF guidelines—though an industry initiative rather than an independent one—are designed to underpin net zero plans by calling for banks to disclose 33% of greenhouse-gas emissions associated with their bond and equity underwriting.
As for the BNEF study, it examined the loans, bonds, equity and project financing that were underwritten for the energy sector and other relevant issuers. The researchers also included tax equity, which represents a growing share of renewables-project finance—particularly in the US.
BNEF then applied what it calls an adjustment factor to estimate the amount of funding raised for low-carbon energy relative to fossil fuels. It looked at roughly 1,000 banks engaged in some form of supply underwriting.
The analysis found that bank financing for energy supply totaled $1.7 trillion in 2022, with $708 billion going to low-carbon energy projects and companies and $967 billion for fossil fuels. From these figures, BNEF came up with an energy-supply banking ratio of 0.73 for the industry.
Of the 20 largest banks ranked by financing volume, none had an ESBR close to 4.0. Barclays Plc’s ratio was the highest, at 1.55. Bank of Nova Scotia’s was the lowest, at 0.32.
Regionally, the US and China are far behind Europe. And while banks in North America accounted for the largest share of energy-supply financing, their average ESBR was roughly 0.5 at the end of 2022, compared with 2.8 for European-based banks. Chinese banks had an average ESBR of 0.6.
The divergence reflects “the relative paucity of oil and gas supply in Europe and the continent historically having the most favorable regulatory environment for low-carbon energy investment,” according to the BNEF report. By contrast, the US, Canada and Mexico play “a major role in the supply of energy, particularly oil and gas, for domestic and export use.”
China dominates coal financing. All of the 10 largest coal-underwriting banks are based in China, with 76% of the global flows concentrated in the country, according to BNEF.
This article was provided by Bloomberg News.