By Robert Rosenberg, Head of Financial Services Business at Planet Mark
If the world is to achieve net zero, then the financial services sector has a critical role to play.
For a start, research from McKinsey estimates that 90% of man-made emissions can be reduced or removed by existing technologies. Nonetheless, around half of these technologies have not been fully developed or deployed. The only way for this to happen is for financial services firms to embrace the next stage of financing green and ensure these technologies have the resources required to help us achieve net zero.
Secondly, the financial services sector isn’t just key to ensuring the world has the technologies and resources required to reach net zero; it also has its own journey to complete with reducing emissions.
Two Birds, One Stone
To reach net zero, financial institutions need to tackle two areas of their emissions: financed and operational.
So far, financial services firms have understandably been quick to focus on reducing financed emissions linked to investments and projects as defined under Scope 3, Category 15 in the GHG Protocol. For financial institutions, this includes emissions related to loans, investments, and project financing.
On the other hand, operational emissions, which cover greenhouse gases directly or indirectly related to a company’s core operations, supply, and value chains, have been less frequently addressed. Operational emissions cover multiple areas, encompassing varying sources across Scopes 1, 2 and 3 emissions. This includes fuel combustion in company-owned facilities or electricity purchased for office operations, upstream supply chain and downstream value chain activities such as purchased goods and services, business travel, employee commuting, waste management, and transportation.
Only by tackling both of these areas with a cohesive strategy can financial services institutions truly embrace and become net zero, meet regulatory requirements and access the opportunities on offer.
Developing a Net Zero Strategy
Naturally, financial institutions have prioritised their financed emissions, as these often make up the largest part of their carbon output and can be quickly affected by changes in investment strategies. However, while greening the portfolio is essential, it is not a complete strategy. Financial firms can only create a full view of their organisation’s footprint by measuring and assessing both operational and financed emissions.
Increasingly, regulatory and commercial pressure is leading to more organisations accounting for and reporting on their operational emissions. Regulations affecting financial services businesses can include those that are UK-specific, as well as EU and international ones. To develop a net zero strategy, knowing what laws must be followed and how this is done is vital. Regulations that financial services firms need to be aware of include:
- Energy Savings Opportunity Scheme (ESOS) – is a mandatory requirement for large organisations (i.e., turns over £44 million and/or employs 250 or more people) to measure and assess their energy consumption and begin implementing energy efficiency recommendations.
- Streamlined Energy and Carbon Reporting (SECR) – requires large organisations to share energy use and carbon emissions in their annual reports.
- Sustainability Disclosure Requirements (SDR) – requires all FCA-authorised firms that offer a sustainable or green product or service to disclose their positive and negative environmental impact and adhere to anti-greenwashing rules.
- Businesses operating in the EU also need to be aware of regulations, including the Sustainable Finance Disclosure Regulation (SFDR).
However, it is not just regulatory pressure that means now is the time for financial services firms to act and develop a net zero strategy, as it also makes commercial sense. Demonstrating quantifiable operational reductions is not just a competitive advantage but a sales necessity in many cases that can impact several areas, including:
- Winning contracts – Reducing and reporting operational emissions isn’t a regulatory tick box; it is increasingly necessary for stakeholders. It is important to remember that your operational emissions will sit in your customer’s Scope 3 Category 1 requirements. Consequently, operational emissions are often a key point included in RFPs, and many tender discussions now feature questions about an organisation’s ESG approach.
- Credibility – Acting on reducing financed and operational emissions shows that a business is walking the walk and increases credibility. In addition, an organisation’s experience in reducing emissions can be passed on to its portfolio, which is helpful in sales pitches.
- Cost savings – By reducing operational emissions, businesses can potentially unlock short-, medium-, and long-term savings, boosting profitability. Simple steps like switching energy suppliers or installing energy-saving technologies like solar panels can help businesses save money while lowering carbon emissions.
Getting Started
For the world to achieve net zero, financial services firms will have to play a vital role in making it happen. Alongside helping finance the development and deployment of the technologies and solutions needed to hit net zero, the financial services sector also has its own net zero journey to complete.
To get started, financial institutions should work with a partner who can help guide them on their journey, gather data on operational and financed emissions, and aid in developing a net zero plan. With regulations and once-in-a-generation opportunities at stake, finance firms can no longer afford to not act on net zero.
