Putting Climate On The Balance Sheet

How should banks account for their role in financing global warming?

- Saijel Kishan 

Behind the scenes at some of the world’s biggest banks, small teams of employees are busy trying to calculate what might prove to be one of the most important numbers any financial institution will ever disclose: how much the assets on their balance sheet are contributing to global warming.

One of those people is Kaitlin Crouch at ING Groep NV. For the past five years, she’s been dissecting transactions—from corporate loans to residential mortgages—to test ways of measuring the Dutch lender’s overall carbon footprint. It’s an elusive figure. Data provided by the bank’s clients, which range from automakers to energy producers, are often inaccurate, and it’s possible to double or triple count the same emissions when different parts of the bank work with the same client. “It quickly becomes a very daunting and sometimes demotivating topic once you start to understand the level of complexity,” Crouch says.

Doing the bookkeeping on carbon may not be glamorous work, but banks are slowly seeing the need for it. The United Nations last year warned that without dramatic new limits on global temperature increases in the next decade, humanity could see food scarcity, mass migrations, and instability as soon as 2040. For banks, one concern is that if society ignores the problem and is later forced to transition quickly to a low-carbon economy, companies and assets that produce a lot of emissions might see a sudden collapse in value.