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Norway’s $1.9 Trillion Wealth Fund Urges Banks to Disclose Financed Emissions

Prime Highlights

  • Norway’s state pension fund demands that global banks disclose emissions associated with loans and underwriting
  • The action brings closer the aim to improve climate transparency in financial reporting

Key Facts

  • Banks have funded $6.3 trillion of fossil fuel activities since 2015
  • Such emissions are not usually disclosed in the banks’ sustainability reports

Key Background

Norway’s Government Pension Fund Global, managed by Norges Bank Investment Management (NBIM), is the world’s largest sovereign wealth fund, with a value of $1.9 trillion. Through a strong call to action, NBIM asked banks worldwide to increase their transparency in reporting climate-related financial activities. Specifically, it demanded that these banks report revenues linked with activities that have carbon emissions but have not been disclosed thus far.

At the heart of NBIM’s call is a vital issue: a majority of financial institutions do not include emissions from activities like lending, underwriting of bonds, and operations in the capital markets. While banks report their own carbon footprint from activities, emissions that they trigger through client financing are typically not reported. This lack of transparency puts investors in a dilemma of how to arrive at an accurate estimate of a bank’s true environmental footprint.

NBIM prefers a suggestion by the International Sustainability Standards Board (ISSB) that requires financial institutions to report the extent of their emissions that are excluded in their reporting. The new guidelines are predicted to be followed by over 60% of the global economies. NBIM policy advisor Jeanne Stampe said this is important in order to understand how much of the income of the bank comes from such “excluded emissions.” It will help investors make more informed judgments about climate risk and the credibility of claims of sustainability.

Despite having support from major asset owners, resistance has come from some financial institutions. They argue that attributing emissions to revenues, especially of complex financial derivatives, may be challenging and result in inaccurate information. However, as it is a fact that global banks have cumulatively provided up to $6.3 trillion in financing for fossil fuels since the Paris Agreement in 2015, NBIM argues that greater accountability is needed.

As NBIM has significant interests in top financial institutions like JPMorgan Chase, Goldman Sachs, and Citigroup, its opinion counts. This action is part of a broader trend of seeing institutional investors demanding sweeping and actionable climate reports that are driving the financial sector towards greater environmental responsibility.

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