Citizens Financial Group has launched a carbon offset program for commercial depositors, seeking to tap into corporations' growing demand for sustainability initiatives.
The bank's Carbon Offset Deposit Accounts program allows commercial clients to purchase credits, using interest generated from their deposits to finance projects that benefit the environment, according to Pat Nuzzo, head of commercial liquidity management at the Providence, Rhode Island-based bank.
"Quality carbon offsets allow companies to compensate for emissions that they cannot yet reduce by allowing them to make an immediate impact as they scale sustainability programs," Nuzzo said in an interview.
Carbon offsets are a financing mechanism that provide companies credit towards decarbonization goals without eliminating hard-to-abate emissions.
Interest in carbon offset purchases has skyrocketed in recent years as companies face public and shareholder pressure to mitigate climate change. Still, Bank of America analysts estimated last year that carbon-offset markets may need to grow by as much as 50 times to meet 2050 corporate net-zero emissions pledges.
In 2020, offsets were issued for an amount totaling 0.4% of total global emissions, the BofA analysts wrote in a research note.
For Citizens, growing demand for carbon offsets represents an opportunity to increase deposits from sustainability-minded clients. The new program is "a tool to align the need for funding with our clients' requirements around ESG," Nuzzo said.
The $226.7 billion-asset bank will use interest from commercial accounts to purchase credits from four carbon offset registry markets: Verified Carbon Standard, American Carbon Registry, Climate Action Reserve and Gold Standard.
Projects listed on these registries range from wind farm developments and landfill gas capturing systems to the reduction of high-potency gases from chemical processes.
Though carbon offsets have soared in popularity, critics argue that they operate in an unregulated market and overstate the environmental impact from claimed reductions of emissions.
In 2017, a study released by the European Commission found that 85% of carbon offset projects under the United Nations' Clean Development Mechanism failed to reduce emissions as advertised.
The lack of oversight and the nascency of the markets has created a "perfect storm of poor quality" for sustainable finance products, according to Barbara Haya, director of the University of California, Berkeley's Carbon Trading Project. Offset purchases "work better on paper than in practice," Haya said in an interview.
"It's commendable that banks are providing ways for account holders to put funds into climate mitigation. Unfortunately, the offset market is not mature at the moment, and many of the credits generated don't represent real emissions reductions," Haya said.
Nuzzo said that sustainability verification is "paramount" to Citizens' carbon offset deposit program.
"Carbon offsets will always be part of the broader carbon-neutrality framework because, let's face it, we can't eliminate all carbon in the environment," Nuzzo said.
The carbon offset program follows Citizens' launch last year of a green deposits program, which Nuzzo said offers "more of a direct benefit" to sustainability initiatives by "earmarking deposits against sustainability-focused loans." Deposits in the latter program are expected to reach around $1 billion by the end of this year, he said.
Citizens has also reported investing a total of $429 million in renewable energy tax-equity investments, including by participating in the funding of nine U.S. wind farm projects since mid-2015.
