Last month at COP26, the Glasgow Pact was ratified, confirming that carbon emissions will have to fall by 45 percent in the next decade to keep temperature rise below 1.5 degrees Celsius by 2050.
Like many sectors, financial institutions across the globe have committed to net-zero emission goals by working to address carbon emitted directly through their operations as well as indirectly through activities such as energy use.
Addressing these financed emissions—those greenhouse gas emissions produced by companies in which a financial institution invests through debt or equity—is not a new concept.
Measurement can also strengthen their ESG strategies, their ability to identify harder-to-abate sectors, and their carbon trading strategies—helping to advance their entire portfolios to net-zero by 2050 or sooner.
Measuring and disclosing the emissions of their portfolios requires financial institutions to learn how to collect specific sustainability data from external sources, including their customers, as well as accurately measure the carbon footprint of their entire portfolio under a range of climate scenarios.
In the absence of a single data governance framework for gathering emissions data and with no single globally accepted methodology for measuring and reporting on individual companies’ impact on the 1.5-degree Celsius rise, financial institutions face significant data gathering and benchmarking challenges.
But even without a single global standard of measurement, financial institutions should start preparing their emissions data.
While the above steps are a strong jumping off point for financial institutions when measuring financed emissions, the most important step will be the industry coming together and agreeing on a single, standard measurement.