The financial services group will occupy a prominent place in the FT-Statista ranking of European climate leaders, based on direct operations and the reduction of emissions linked to energy consumption from 2014 to 2019.

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

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

Wolfgang Kuhn, director of financial sector strategy at ShareAction, a charity that promotes responsible investing, said global impact assessment needs to be changed to “what responsible investing really is.” . I go.

Investors tend to focus primarily on climate-related risks to earnings, but an analysis of financed emissions involves recognizing “how you, as a bank, are causing climate change.” He insists.

Data gap

The financing of emissions metrics, and more broadly of supply chain emissions, has been highlighted in the surge in corporate climate change commitments over the past year and subsequent discussions on which could be significant. I take a bath. Supply chain emissions can be significant, but tracking them can be very difficult.

According to an April report from a nonprofit organization, total loan issuance from financial institutions is on average 700 times their operational issuance, based on data from 84 organizations that managed $ 27 trillion in total assets. . That was all. Lawyer for the Carbon Disclosure Project, Environmental Transparency.

700

Estimated number of times financial institution loan issuance is higher than operational issuance

However, these institutions represented only a quarter of the 332 banks, asset managers and insurers surveyed. The others did not disclose data on loaned shows.

To calculate a portfolio’s carbon dioxide emissions, you need detailed information about the companies in the portfolio. The analysis, for which several methodologies exist, varies according to the 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 Europe, Middle East and Africa, says banks face “very real and significant challenges” in calculating financed issues. It is said.

She says the biggest hurdle is the lack of data, as not all of the thousands of companies in the bank portfolio have information on their issues. HSBC Plan to set emissions targets with funding from sectors Achieve net zero by 2050..

Many institutions began by focusing on a handful of carbons.
Intensive sector. BarclaysThe British Bank said last year it would start by calculating financed emissions in the energy and power sectors. Earlier this year, he announced he would expand that work to cement, steel and aluminum.

Barclays’ target is to reduce the emissions intensity (emissions / revenues) of the electricity portfolio by 30% and absolute emissions of the energy portfolio by 15% by 2025. In 2022, we will announce our targets for cement, steel and aluminum. .

Detailed objectives

But even though the agency funds emissions data, there is a lack of consensus around this. Properly ambitious goal – And how to reach them.

How do you set goals in relation to [financed emissions]?? Ask Eric Pedersen, responsible investment manager at Nordea Asset Management in Denmark. He also asks how the target affects the “freedom” to adjust an investor’s portfolio. Nordea does not declare the programs loaned.

Cynthia Cummis, a board member of the Science Based Targets Initiative, a coalition of environmental research groups, says organizations need to set detailed sector targets for absolute funded emissions and emission intensity. ..

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

Leonie Schreve, global head of sustainable finance for Dutch bank ING, believes that banks play an important role in helping other companies reduce their emissions. “No desire” for change, she said, will face “results over time.” ING has set emissions intensity targets for certain sectors, but does not yet have absolute funding targets.

Banks will say they will engage with their customers and support the transition to Net Zero. It sounds good, but what does it mean?

ShareAction’s Kuhn says the prominent promises and promises to help customers migrate are often lacking in detail. “Banks will say they are engaging with customers and supporting the transition to Net Zero. It sounds good, but what does it 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 work on a methodology to measure portfolio emissions, which Cummis says “use it with financial institutions. There was a lot of resistance to. “I don’t think financial institutions feel the pressure to report,” she said.

Since then, pressure from investors and regulators has increased. Yet “it will take time for banks to set these global climate targets,” Cummis said. The important thing is that “there is not yet a general definition of net zero in a portfolio”.

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