It’s a global trend, and one to which UK financial institutions are not immune: the increasing pressure to align business operations with global sustainability standards.Any future climate action must take a data-based approach to ensure transparencyFor these organisations, reducing their own direct carbon footprint is the simple part. The more complex task is assessing the climate impact of lending and investment portfolios.A 2019 report by WWF and Greenpeace found that investments held by the UK’s biggest banks and investors emitted 805 million tonnes of carbon a year. It went as far to say that if this industry were an independent nation, it would rank 9th in the world for carbon emissions. So, while 86% of banks have disclosed targets related to becoming net zero in financed emissions by 2050 (according to KPMG), they still have a long way to go.The reality of the situation is by no means lost on FIs. Potential fines and penalties for non-compliance and lost business due to reputational damage are two of the biggest fears commonly cited amongst UK financial organisations as the most worrisome costs of climate inaction.It’s clear that there is a general acknowledgement of the urgent need for robust sustainability strategies, not only for the sake of the wider global climate agenda, but for the future of these businesses themselves in a low-carbon economy.At risk of falling behindMore and more attention is being placed on financial institutions and their portfolios. The scrutiny from stakeholders, combined with increasingly strict regulations such as the CSRD, SFDR and UK SDR, put the onus on banks and other financial institutions to be stringent in their reporting and disclosures. But could this mounting pressure put financial institutions – particularly smaller organisations – at risk of collapsing?So far, financial institutions have taken a phased approach to disclosing emissions data as they work to include more asset classes and sectors. In order to align with industry expectations, the pace needs to quicken.Another identifiable issue is the use by financial institutions of different data sources, and different data types, to calculate financed emissions. When proxies are used instead of verified activity-based emissions, the data becomes less complete, and therefore less reliable, jeopardising the calculation of the organisation’s total financed emissions.Clearly, responsibility does not lie solely with financial institutions. We hear global calls for better emissions data capture and reporting across all businesses. However, in the meantime, there are clear demands on financial institutions to produce the most accurate data possible.My company, in partnership with Capgemini Invent, recently surveyed financial organisations in the US, UK, Germany and France, and found that 35% of them have not completed a ‘double materiality’ assessment, as required by the European Union’s CSRD regulation.This gap exposes these firms a
Mer. Feb 12th, 2025
