Emissions reporting must pay heed to how reductions are achieved

THE banking industry’s plans to change the way it reports financed emissions may help lenders avoid some pitfalls in financing the decarbonisation of high-emissions clients. But the solution does not solve the deeper issue of how those clients reduce their reported emissions.

The Glasgow Financial Alliance for Net Zero (GFanz) has just wrapped up a public consultation on proposals to establish reporting methodologies to support transition finance.

A key suggestion is the reporting of “expected emissions reductions” (EER). This is intended to help overcome the current challenge, in which a bank that finances the early phase-out of a coal-fired power plant has to count the plant’s emissions in its portfolio. This makes it hard for the bank to reduce its financed emissions. The idea is that by reporting and tracking progress on potential emissions reductions in a portfolio instead, lenders can demonstrate their contribution to decarbonisation, so that the increase in the bank’s financed emissions can be taken in the right context.