I wanted to focus on an interesting aspect of the Scope 3 standard. Explicitly included in the standard, alongside items such as purchased goods and services and business travel sits the category “Investments”. The standard goes on to explain how to account for a wide range of investments including equity, debt, project finance and pension funds.
This subject of “financed emissions” had been bubbling along under the surface but came up for air when the Royal Bank of Scotland (RBS) were taken to the High Court in 2009 over the Treasury’s failure to stop the publicly owned bank investing in what campaigners described as ‘some of the most environmentally damaging projects and companies around.’
And just last week… a ‘girl band’ of environmental activists dressed as ‘oily bankers’ protested outside the Scottish Low Carbon Investment Conference in Edinburgh, sponsored by…..RBS. WATCH THE VIDEO to see them singing Jessie J’s ‘Price Tag’ with lyrics changed to describe the story of RBS’s ‘oily investments’, which finance companies involved in some of the world’s most environmentally destructive activities. You can see a pattern emerging…. Other banks have taken notice and are slowly beginning to look at the security of their investments and loans when judged against the credit risk brought about by carbon emissions or other environmental damage costs.
But let’s be clear firstly the increased risk is currently slight and if RBS were not making these loans other banks would be. However financial institutions would be well advised to consider these risks because it is likely they will grow over time and a change in government policy – such as the introduction of a carbon floor price in the UK can crystallize increased risk in a moment. So why not measure your investments or loan book exposure against an appropriate benchmark – if as a bank you lend principally to the Oil and Gas sector how do your debtor companies compare on environmental risk exposure versus others in the same sector. Not only will you have a more robust risk assessment model but you will also have an answer to singing NGOs.
At the moment it is principally up to the banks to set criteria against which they make their lending decisions – but it is always worth looking at countries that are leading the way to see what may happen in future.
Does it come as a surprise when you type “green credit policy” into Google – that the only country name you’ll find is China?