In Focus: Climate Change Challenges for Financial Sector Players and the Companies They Provide With Capital – Measuring and Managing the Risk

August 2 2020

by Hank Boerner – Chair & Chief Strategist – G&A Institute

Some encouraging developments for you from the (1) capital markets community and (2) the corporate sector and (3) the combining of forces of each.

To start: Morgan Stanley has become the first major U.S. bank to join the Partnership for Carbon Accounting Financials and will begin measuring and disclosing the emissions generated by the businesses that it lends to and invests in.

Big deal, we say:  the sources of capital telling the world what the companies they lend to, invest in, are emitting…whether the company discloses that or not. 

PCAF is a global collaboration of financial institutions aiming to standardize carbon accounting for the financial sector.

The work of the partnership could profoundly change the way that financial institutions and their corporate clients address climate change issues (and disclose the result of same).

Morgan Stanley will lend its insights and expertise to help the coalition development global standard that can be used by all financial institutions to measure and reduce their own climate impact.

In addition to measuring its Scope 3 emissions – including financed emissions, defined by the Greenhouse Gas Protocol as Category 15 emissions.

Morgan Stanley’s announcement comes a year after the institution released a report outlining the financial benefits of decarbonization for businesses — with an earnings potential between US$3-to-$10 billion.

Also involved in the standards project on the Steering Committee: ABN AMRO, Amalgamated Bank, ASN Bank, Tridos Bank, and the Global Alliance for Banking on Values (GABV).

Today there are 66 institutions involve in the partnership, with $US5 trillion-plus in collective AUM. The partnership is planning on releasing the standard at the COP 26 global gathering.

The Morgan Stanley Institute for Sustainable Investing builds “finance solutions” that seek to deliver competitive financial returns while driving positive “E” and “S” solutions.  Audrey Choi is the bank’s Chief Sustainability Officer and CEO of the Institute.  More information is at: www.morganstanley.com/sustainableinvesting.

And here is the encouraging news from the corporate sector and the investor service provider community:  Microsoft (MSFT) is teaming with MSCI – the global investment community advisor on risk and ESG issues – to “accelerate innovation among the global investment industry”.

MSFT’s cloud and AI technologies along with MSCI’s portfolio of tools will be aligned to “unlock innovations for the industry and enhance the ESG ratings agency’s products, data and services”.

The collaboration begins with migration of MSCI’s products onto the Microsoft Azure cloud platform with Index and Analytics solutions and then on to the MSCI ESG products and ratings.

Going forward MSFT and MSCI will explore possibilities to further drive development of climate risk and ESG solutions for investors and corporates.

Third item:  Microsoft is aiming to become a Zero-Carbon Enterprise.  The company announced a “suite” of  initiatives to wipe out the carbon “debt” acquired  — get ready – over the lifetime of this tech company.  Every bit of carbon “debt” ever generated over several decades!

MSFT is joining forces with Maersk, Danon, M-Benz, Natura, Nike, Starbucks, Unilever and Wipro to create a new coalition – Transform to Net Zero. (Environmental Defense Fund/EDF is a founding member).  MSFT peer/competitor/fellow transformation of society company Apple is aiming to have net-zero impact on every product in the next 10 years.

These Top Stories are of a “fit” – as financial institutions develop new approaches to meeting climate change challenges the Global Carbon Accounting Partnership moves forward to bring a new standard to the financial services community.

And the MSCI / MSFT collaboration will be developing tools and resources that align with the standards effort.  MSFT itself is moving toward to become Zero Carbon tech company.  Do stay tuned!  Some details for you….

Morgan Stanley Becomes First U.S. Bank To Measure Carbon Footprint Of Its Loans (Source: OilPrice) Morgan Stanley has become the first U.S. bank to start measuring the emissions generated by the businesses it lends to and invests in, the bank said in a press release.

The news from Microsoft and MSCI on their collaboration:
https://www.msci.com/documents/10199/b8849622-7a48-1901-123e-29d39cca3814

As we prepared the above perspectives in our weekly newsletter, more related news came in:  Stefanie Spear, our colleague at As You Sow, alerted us that Bank of America and Citi Group joined Morgan Stanley in the commitment to publicly disclosure carbon emissions from loans and investments. (The two institutions are part of the Partnership for Carbon Accounting Financials, a global framework for financial institutions to measure and disclose the emissions from their lending and investment portfolios.)

And one more for you – Polly Ghazi of Triple Pundit (part of 3BL Media) prepared an excellent roundup of recent news that includes Morgan Stanley, BlackRock and Boston Consulting.  (And thank you to her for the mention of the G&A Institute’s S&P 500 research results on corporate reporting.)

We present 3BL media roundups in the weekly G&A newsletter, Sustainability Highlights — here is Polly’s post: https://www.triplepundit.com/story/2020/sustainability-reporting-new-highs/121006

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