Let’s talk: sustainability, Issue 2

Accounting for GHG emissions: banking on the benefits

  • Share

The financial services industry is playing an increasingly important role in the transition toward a low-carbon economy while simultaneously discovering new business opportunities.

Like other organizations, banks have worked to reduce the GHG emissions of their operations. However, banks can have an even bigger impact through their financing of “low or no carbon” investments.

External stakeholders recognize this, and a growing number of socially responsible investors, shareholders and non-governmental organizations (NGOs) are asking financial institutions to account for their financed emissions in addition to the GHG emissions they generate directly from their operations.

These NGOs and investor groups seek to engage financial institutions on this topic, by often submitting shareholder proposals requesting that the company report quantitative measures of direct and indirect emissions and set goals for reducing the financed emissions in their portfolio. As these committed and vocal groups seek to reach investors and consumers with their messaging, the measuring and reporting of the environmental impact of investment portfolios is becoming a reputational challenge that is demanding more attention than ever.

Measuring banks’ Scope 3 GHG emissions — indirect emissions that result from sources that are owned or controlled by others – throughout their investment portfolios is far from a refined science. Organizations like the World Resources Institute (WRI) and the United Nations Environment Programme (UNEP) have convened working groups to create Financial Sector Guidance for the Greenhouse Gas Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard, which will form the basis of future reporting requirements.

Meanwhile, some financial institutions are taking the lead and developing methods to measure their financed emissions. For banks, financing low or no carbon emitting projects not only mitigates reputational risks, but also has tangible business value by uncovering new opportunities. Indeed, large financial institutions are already acting on these opportunities.

Financial institutions now have the opportunity to accelerate the transition to a lower-carbon economy. Measuring and reporting on the environmental impacts of financing low or no carbon projects and investments can position banks as leaders in moving toward a lower carbon society.

Credible measurement and reporting helps to demonstrate a clear commitment to strong environmental, social and governance (ESG) programs and reporting on them helps improve brand reputation and bolster transparency and credibility.