Fossil lending

The Box

Written by Ulf Erlandsson

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We have developed a fee-based algorithm – “the Box” – to better align fossil focused banks' activities with those of climate focused asset managers, asset owners and bond issuers. The algorithm we are proposing is based on counterparty de-selection and is a dynamic and low-cost approach that asset managers, asset owners and bond issuers with climate goals can use to steer fossil fee focused banks into better climate alignment over time.

Our selection method, focusing on relative fee generation from fossil debt capital market transactions, indicates that SMCB, MUFG (regional banks, Asia), Société Générale (regional banks, Europe), RBC (regional banks, NA) and Citi (global banks) stand out on their high relative fee earnings from fossil intensive capital market transactions and thus should be at risk of being deselected and “boxed”.

Our argument is that fee revenues from various market transactions are as attractive to banks as issuing loans from their own balance sheets, and even more so as direct loan book exposure to fossil deals has started to decrease. In order to proxy fee revenues from fossil activities, we construct league table data on relative fossil bond syndication, i.e. how much of total syndication fees come from high emissions related sectors.

About the author

Ulf Erlandsson

Ulf Erlandsson

Founder, Board member

Dr Ulf Erlandsson founded the Anthropocene Fixed Income Institute and was its first CEO. A pioneer of climate-focused fixed income portfolio management, he was named Environmental Finance’s Bond Personality of the Year 2022.

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