Morgan Stanley will measure CO2 impact of loans and investments

Morgan Stanley has become the first major U.S. bank to commit to measuring and disclosing the climate impact of its loans and investments, announcing last week that it has joined a multi-trillion dollar group of global financial institutions developing a standardized method for carbon accounting.

The U.S. bank has become the latest financial firm to join the Global Carbon Accounting Partnership (PCAF), a growing coalition which first began in the Netherlands in 2015 and now boasts 66 formal members from around the world representing more than $5.3 trillion in assets.

In addition, Morgan Stanley also has joined the PCAF’s steering committee alongside founding members Amalgamated Bank from the United States; Dutch banks Triodos, BN AMRO and ASN Bank; and the Alliance for Banking on Values (GABV).

As a steering committee member, Morgan Stanley will “lend insights and expertise” to help PCAF develop the global accounting standard, as well as committing to measure and disclose its own financial emissions, according to industry coalition.

The announcement marks a major coup for the PCAF and is a landmark green move for Morgan Stanley, one of the world’s largest and most recognizable private banking groups, which from 2016 to 2019 invested more than $91 billion n fossil fuels, according to the Rainforest Action Network.

Wall Street is driving the climate crisis, and if banks want to be part of the solution, they have to start by being transparent about the extent to which they’re currently part of the problem.

“We are excited to join PCAF and to support the important work they are leading to build a methodology for global banks’ efforts to track and measure climate change risks,” said Audrey Choi, Morgan Stanley’s chief sustainability officer and CEO of the Morgan Stanley Institute for Sustainable Investing.

Launched globally only last year, PCAF describes itself as as a collaborative effort from financial institutions to develop “a harmonized approach to the assessment and disclosure of greenhouse gas emissions financed by loans and investments” for use by asset owners, asset managers and banks.

It is a separate initiative from the Taskforce on Climate-related Financial Disclosures (TCFDs), although the two can complement each other, according to the PCAF.

Whereas the TCFDs offer a voluntary framework for assessing and disclosing physical and transitional climate risks, the PCAF aims to develop a formal carbon accounting standard for the financial sector, potentially enabling for more detail and consistency in reporting.

PCAF said the measurement of the emissions associated with loans and investments — the financial sector’s Scope 3 emissions — would provide crucial data to help banks and financial firms to assess climate risk, manage impact, meet the disclosure demands of stakeholders and customers, and assess progress towards climate goals.

The industry coalition’s carbon accounting methodology “will soon be published as a global methodology” and “has been the work of a core team of financial institutions, including Morgan Stanley,” it explained.

“We are very excited about Morgan Stanley’s leadership in sustainability and believe they will bring an important voice to our management group,” said Giel Linthorst, executive director of the PCAF secretariat. “As we work towards COP26, and a critical year ahead in aligning the finance sector with the goals of the Paris Climate Agreement, we believe that PCAF and member financial institutions will play an important leadership role in that work.”

It comes as banks and financial institutions face growing pressure from campaigners, policymakers, regulations and investors to account for and take action against the sizeable climate risk in their investment portfolios.

Ben Cushing, senior campaign representative at U.S. environmental NGO Sierra Club, hailed the move as “a major step in the right direction” for Morgan Stanley, and said all banks claiming to support the goals of the Paris Agreement also should follow suit.

“Wall Street is driving the climate crisis, and if banks want to be part of the solution, they have to start by being transparent about the extent to which they’re currently part of the problem,” he said. “Measuring and disclosing their impact is important, and now the critical next step will be to mitigate this impact by committing to an aggressive timeline to phase out their funding for climate-polluting fossil fuels altogether.”