Financial sector

The Financial Sector's Path to Net-Zero

The financial sector has a critical role to play in achieving global net-zero emissions goals. This sector encompasses a variety of players, including:

• Asset managers

• Insurers

• Bankers

• Non-banking lenders

• Financial services or transaction facilitators

Like any other industry, these institutions must take a structured approach to achieve net-zero goals. This involves three key steps:

1. Measure: Accurately quantify the emissions associated with their operations and financial activities.

2. Monitor: Track progress toward emission reduction targets and identify areas for improvement.

3. Report: Transparently disclose emissions and climate-related risks and opportunities.

Measuring Financed Emissions

While the financial sector's operational emissions are relatively small, its financed emissions – those resulting from its lending and investment activities – are significant. These fall under Scope 3, Category 15 of the Greenhouse Gas Protocol.

 The Partnership for Carbon Accounting Financials (PCAF) has emerged as a leading standard for measuring financed emissions, gaining industry-wide acceptance. PCAF provides methodologies and tools to help financial institutions measure and report their financed emissions.

 UN-convened Initiatives for Standardization

The UN has played a crucial role in driving the development of standardized methodologies for measuring, reporting, and monitoring financed emissions. Key initiatives include:

• GFANZ (Glasgow Financial Alliance for Net Zero): A global coalition of financial institutions committed to accelerating...source of the economy.

• NZAOA (Net-Zero Asset Owner Alliance): A group of institutional investors committed to transitioning their investment portfolios to net-zero GHG emissions by 2050.  

• NZBA (Net-Zero Banking Alliance): A group of leading banks committed to aligning their lending and investment activities with net-zero emissions by 2050.  

• TPT (Transition Pathway Initiative): (Now subsumed into ISSB) An initiative that assesses companies' preparedness for the transition to a low-carbon economy.

These initiatives are working to harmonize standards and guide financial institutions on their net-zero journeys.

 Key Challenges and Considerations.

 Despite the progress made, challenges remain in achieving net-zero finance. These include:

• Data availability and quality: Obtaining accurate and comprehensive emissions data from portfolio companies can be challenging.

• Standardization and comparability: Ensuring consistency in methodologies and reporting frameworks is crucial for meaningful comparisons and tracking progress.

• Addressing financed emissions in high-emitting sectors: Financial institutions must engage with carbon-intensive companies to drive emission reductions.  

The financial sector can play a pivotal role in achieving a net-zero future by addressing these challenges and adopting robust measurement, monitoring, and reporting practices.

 Sustina Eco Advisors has a team of experts from Finance, Accounting, Risk , Sustainability, and  AcedemiaLed by a retired senior banker to guide you in your path to achieve NetZero Ambitions and reduction of Portfilo emissions.