Banks lack both reliable climate data and standardized disclosure guidelines that would enable them to fully account for the greenhouse gas emissions tied to their financing activities, according to an environmental group's new report.
Delays in obtaining climate disclosures from banks' corporate clients and data providers are creating a lag effect in the industry's reporting of its financed emissions, the Environmental Defense Fund said in the report.
In some cases, banks are using climate data from the previous year in calculations that also rely on their most recent financial statements, the advocacy group found.
"If you're using emissions data as a numerator from one year, and the denominator is financing data from another year, that's always going to give misleading results," said Andrew Howell, senior director of sustainable finance at the Environmental Defense Fund and a co-author of the report.
"This can be problematic for stakeholders who want to know where banks are at in their progress," Howell said in an interview. He acknowledged that the standards for reporting financed emissions are still evolving.
Reporting financed emissions based on delayed climate data "creates the impression of much lower absolute emissions," said Maximilian Schreck, an analyst at the Environmental Defense Fund who worked on the report.
"Investors that are skimming through these reports are going to have an inaccurate view," Schreck said.
Financed emissions measure how a bank's loans and investments impact the environment. For large banks in particular, the calculation results from a
The Environmental Defense Fund report highlights differences between the measurement of absolute emissions, which are the volume of emissions a company produces, and the measurement of intensity targets, which are based on the efficiency of the processes that generate pollutants.
If one bank uses only the former measurement, and another bank uses only the latter, it becomes difficult to compare the two banks' emissions reductions, the report's authors said.
And the patchwork of measurements is causing banks to report "incomplete and sometimes misleading results," the environmental group said.
To highlight differences in how banks calculate their financed emissions, the Environmental Defense Fund compared recent climate disclosures by Citigroup and JPMorgan Chase.
Citi's most recent
The New York bank also reported a slight increase in oil-and-gas intensity emissions.
Val Smith, Citi's chief sustainability officer, said that it's "generally understood" in the banking industry that there's a two-year lag between the reporting of corporate climate data and when banks disclose their financed emissions.
Reporting on financed emissions is nascent and "imperfect," Smith said in an interview. The availability of climate data "has to improve in order for companies to feel like it is business-decision useful," she said.
At the same time, Smith said: "We need to begin marching forward with the data that we have."
JPMorgan did not report any absolute emissions measurements in its most recent climate disclosures. But similar to Citi, the nation's largest bank did report a slight increase in intensity emissions in the oil and natural gas sector.
Differences in the two banks' reporting methodologies make it difficult to compare how they performed, the Environmental Defense Fund stated in its report.
A spokesperson for JPMorgan declined to comment.
Kristina Wyatt, deputy general counsel and chief sustainability officer at the climate data provider Persefoni, predicted that improvements in technology will facilitate faster reporting of emissions data.
"Having a mechanism for an easy exchange of data will be critical to help ensure that data is traceable and reliable," Wyatt said.
She added that inconsistent or non-comparable emissions disclosures could lead banks to report inaccurately on their progress in meeting interim net-zero targets. Numerous banks have established the goal of achieving net-zero emissions by 2050, along with interim targets for 2030.
"A lack of transparency creates the conditions that could lead to inaccurate disclosures and less accountability," Wyatt said.
