Banks feel the heat on financed emissions

The Financial Services Group will serve prominently in the FT-Statista rankings of European climate leaders, based on direct operations and reduced emissions from energy use from 2014 to 2019.

However, banks and asset managers are under pressure to calculate and reduce carbon emissions across their portfolios. this is, Climate change Everything from small business loans to global equity holdings, and the emissions-based valuations made possible by their investments, lending and underwriting, will look quite different.

These so-called “funded emissions” tend to be much higher overall than emissions from the direct operations or energy consumption of banks or asset managers, but have not yet been widely measured or reported.

Wolfgang Kuhn, director of financial sector strategy at ShareAction, a charity that promotes responsible investment, said assessing the overall impact needs to be changed as “what is responsible investment really”. I will.

Investors tend to focus primarily on climate-related risks to earnings, but an analysis of funded emissions is about acknowledging “how you as a bank cause climate change.” He insists.

Data gap

Financing emissions measurements, and more broadly supply chain emissions, have been highlighted in the surge in corporate climate change pledges over the past year and subsequent discussions of what could be meaningful. I’m taking a bath. Supply chain emissions can be important, but tracking them can be very difficult.

According to a April report from a nonprofit organization, total lending emissions from financial institutions average 700 times their operational emissions, based on data from 84 organizations that managed $ 27 trillion in total assets. That was all. Advocate of Carbon Disclosure Project, Environmental Transparency.


Estimated number of times financial institution lending emissions are higher than operational emissions

However, these institutions were only a quarter of the 332 banks, asset managers, and insurers surveyed. The rest did not disclose the loaned emissions data.

To calculate the carbon dioxide emissions of a portfolio, you need detailed information about the companies in the portfolio. The analysis, for which several methodologies exist, varies by asset class and often takes into account the size of the institution’s holdings in each company.

Farnam Bidgoli, Head of Environmental, Social and Governance Solutions for HSBC’s Europe, Middle East and Africa, says banks face “very real and big challenges” in calculating funded emissions. It states.

She says the biggest hurdle is the lack of data, as not all thousands of bank portfolio companies have information about their emissions. HSBC Plan to set emission targets with funds from sectors that match Achieve Net Zero by 2050..

Many institutions started by focusing on a handful of carbons-
Intensive sector. BarclaysThe British Bank said last year that it would start by calculating funded emissions in the energy and electricity sectors. Earlier this year, it announced that it would extend this work to cement, steel and aluminum.

The purpose of Barclays is to reduce the emission intensity (emissions to revenue) of the electricity portfolio by 30% and the absolute emissions of the energy portfolio by 15% by 2025. In 2022, we will announce our goals for cement, steel and aluminum.

Detailed goals

But even if the agency is funding emission data, there is a lack of consensus around it. Properly ambitious target — And how to achieve them.

How do you set goals in relation to [financed emissions]?? Ask Eric Pedersen, Responsible Investment Officer of Nordea Asset Management in Denmark. He also asks how the target affects the “freedom” of adjusting an investor’s portfolio. Nordea does not report loaned emissions.

More stories from this report

Cynthia Cummis, a member of the Steering Committee of the Science Based Targets Initiative, a coalition of environmental research groups, states that organizations need to set detailed sector-specific targets for absolute funded emissions and emission intensity. ..

Reducing portfolio emissions can mean that financial institutions have to sell from the carbon-intensive sector. This is what many green groups are looking for. However, many money managers argue that polluted businesses will find funding elsewhere, and a better strategy is to make them more environmentally friendly.

Leonie Schreve, Global Head of Sustainable Finance for Dutch Bank ING, believes banks are playing an important role in helping other companies reduce emissions. “No desire” for change, she says, will face “results over time.” ING has set emission intensity targets for some sectors, but has no absolute funding targets yet.

Kuhn of ShareAction states that the striking pledges and promises to help clients migrate are often lacking in detail. “Banks will say they engage with clients and support the transition to Net Zero. That sounds good, but what does that mean?” He asks. “Are you going to give them deadlines and standards? What do you want them to do?”

In 2014, the global standards body Greenhouse Gas Protocol began working on a methodology for measuring portfolio emissions, which Cummis said, “use it from financial institutions. There was a lot of resistance to. ” “I don’t think financial institutions are feeling the pressure to report,” she says.

Since then, investor and regulator pressure has increased. Still, “it will take time for banks to set these comprehensive climate goals,” Cummis believes. The important thing is that “there is no general definition of net zero in a portfolio yet”.

Climate capital

Where climate change meets business, markets and politics. Check FT coverage here

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