In understanding how to reduce carbon footprints, companies in the banking, financial services, and insurance (BFSI) industry can take a wide array of innovative approaches. Banks and financial institutions provide the funding that large emitters require to operate. Therefore, they must play a critical role in efforts to accelerate decarbonisation and the development of sustainable economies.
At the same time, financial firms are uniquely well-positioned to drive changes needed to reach vital climate goals. They also affect the institutional transitions required to achieve more sustainable systems in the years to come. To understand the role of financial firms in sustainability, take a look at the following guide for the latest insights.
The Financial Institution’s Role in Climate Change Mitigation and Adaptation
Banks and other financial institutions provide funding and management services for carbon-emitting businesses to operate. Inversely, this means that banks can leverage capital and relationships with existing industries to drive decarbonisation. This is the adoption of green energy systems and other ways to reduce the carbon footprint for businesses.
Recent research reveals that 52% of financial institutions now recognise environmental and climate change as a major emerging risk, compared to just 37% in 2019. Compounding this is the fact that emissions generated by companies financed by or banking with financial institutions represent 95% of banks’ overall carbon footprints. Consequently, financial sector experts have taken a number of steps to reduce these carbon footprints.
Thus, strategies concerning how banks can reduce their carbon footprints must strike a balance between reducing financed emissions and continuing to work with large-scale emitters. Although a significant challenge for the finance sector, such strategies could also be the key to achieving the most sought-after climate goals.
How Companies can Reduce their Carbon Footprint
The greater complexities of the financial sector provide an attractive line-up of options when contemplating ways to reduce carbon footprints. Particularly important is reconsidering or modifying the relationship between your bank and the companies for which it provides financial services. Here are a few approaches which are seeing success in the BFSI industry.
Determine Your Share of Financed Emissions
When considering how banks can reduce their carbon footprints, it’s necessary to first establish an emissions baseline. This is a calculation of the type, number, and extent of emissions released by companies making use of your financial services.
Generally, the first step in establishing such a baseline is identifying the heaviest emitters in your portfolio and assessing how much they emit and under what circumstances. This can be done through information they provide or an independent assessment.
Other necessary steps in determining your share of financed emissions include:
- Choosing a specific time period in which carbon was emitted to gather the most up-to-date statistical information. Market trends, such as increasing electric vehicle usage or fluctuating demand for high-carbon commodities, should also be considered.
- Assessing asset classes, such as those described by the Partnership for Carbon Accounting Financials (PCAF).
- Taking into account greenhouse gases (GHGs) other than carbon in your calculations. This can lead to insights into more effective ways to reduce your carbon footprint and emissions.
Decarbonisation Through Portfolio Management
Carbon emissions are typically categorised according to whether they fall under scopes 1, 2, or 3. These describe where the emissions originate: scope 1 emissions come from directly-owned assets; scope 2 from energy consumption; and scope 3 from suppliers, partners, and consumers.
For firms that maintain extensive investment portfolios in energy companies, reducing a carbon footprint involves reassessing the footprints of those assets not under their ownership or management. Those firms need to ask how companies reduce their carbon footprint and about mitigation strategies.
You can also reduce your own footprint by diversifying your portfolio to include more sustainable companies with reputations for having sound ESG strategies, maintaining their metrics, and noted for scoring high in ESG ratings. Alternatively, it may be possible to achieve carbon neutrality by trading carbon credits to offset emissions attributable to your own activities and assets in your portfolio.
Invest in Green Energy Sources
One of the best-known ways to reduce carbon footprints is through green energy. Proven sources include solar and wind energy, geothermal power, hydropower, ocean energy, and bioenergy.
These sustainable alternatives yield a range of opportunities for profit while helping organisations reduce their carbon footprints. Apart from decreasing dependence on carbon-heavy technology, investing in green energy is a sound business decision, considering its annual growth rate of 12.6% for over a decade.
Banks and financial firms can choose to invest in promising technologies, such as carbon capture and storage (CCUS), hybrid or electric vehicle development, and sustainable farming initiatives.
Convene 2zero: Your Key Resource for Sustainable Finance
At Convene ESG, we understand the challenges faced by the banking and finance industry in leading the world to a more sustainable, profitable future. That’s why we’re pleased to offer Convene 2zero, a comprehensive, easy-to-use carbon footprint calculator. Designed to measure emissions across scopes 1, 2, and 3, Convene 2zero is an invaluable tool for building the knowledge base you need to manage financed emissions and reduce your carbon footprint.
Visit Convene 2zero to learn more about what we have to offer and discuss how to reduce your carbon footprint.
