Word Resources Institute Report: Financial Institutions Should Improve Environmental Risk Identification and Mitigation Efforts

Word Resources Institute (WRI) recently published a new issue brief titled Accounting for Risk.

This publication focused on the myriad issues confronting financial institutions (FIs) when determining and evaluating greenhouse gas (GHG) emission inventories and related risks.  The study concludes that there are a number of benefits to FIs for implementing well-thought out processes for assessing GHGs beyond their direct emissions.

Key risks discussed include:

  • GHG risk impact on new investment opportunities.  This risk may be most prevalent in the power generation sector.  WRI noted

Investments in carbon-intensive projects are no longer a safe bet. Companies, under pressure from shareholders, have been pulling support and cancelling plans to construct new coal plants.

  • Appropriate scope for emissions measurement. WRI contrasts two different scoping approaches – the Operational Control approach and the Equity Share approach.  To illustrate the potential differing results between the two, WRI provided an example.

In 2007, Citi reported its total environmental footprint (scope 1 and 2) at about 1.4 million metric tons of CO2, but estimated its share of CO2 emissions from financing just two thermal power plants to be almost 200 million metric tons of CO2 (~3.3 million metric tons on an annual basis based on a 60 year life). That’s a big difference, and, like Citigroup, most other financial institutions’ traditionally reported scope 1 and 2 emissions will be tiny when compared to their share of emissions from investments.

  • Comparability and reliability of emissions calculation methodologies.  Elm has commented several times on the issues of emissions calculation risks here, here and here.  In its report, WRI echoed our earlier comments and quoted Eliza Eubank, Assistant Vice President of Environmental and Social Risk at Citi:

“If everyone is finding their own way and designing their own methodology, then you really don’t know how to compare different numbers that different people are putting out there.” Without guidelines, deciding what and how to report, “can be a very dicey issue.”

In its summation, WRI stated:

To satisfy internal users (i.e., financial institutions) and external users (e.g., investors, clients, NGOs, regulators), more definitive and standardized [GHG inventory] guidance is needed.

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