Other parts of this series:
It’s fantastic that banks are taking the lead in the fight against climate change. Over 50 banks from across the world have pledged to reach net-zero carbon emissions by 2050. And many more are set to follow. Banks can become stewards of the global economic transformation that’s protecting the future of our planet.
But many banks may struggle to meet their net-zero goals. Why? Because they’ve got to do more than steer their own operations to becoming carbon neutral. They’ve also got to transform their lending portfolios. To do this, they must encourage their credit customers to curb their carbon emissions and where necessary guide them during their transition to net zero. This is likely to be a big and complex task.
Many banks have set themselves targets across their business sectors to enable them to meet their net-zero commitments. But some have yet to devise an appropriate roadmap, with achievable milestones, to direct them and their credit customers on the journey to becoming carbon neutral. Furthermore, the processes that banks are often using to manage this transition are frequently developed as they are required rather than as part of long-term strategies.
Without well thought out architectures and tools, banks will flounder in their efforts to meet their net-zero commitments. What’s more, they’ll open themselves to accusations of greenwashing and failing to support the global drive to sustainability. There’s a big risk of a backlash against institutions that come short on their net-zero pledges.
To reach their net-zero objectives, banks must begin by ensuring that they can measure the carbon emissions generated by their own operations and those produced by the companies they finance. They need far-reaching data solutions that source, track and report in-house and customer carbon emissions. Once banks have appropriate data solutions in place, they can then advance on the journey to net-zero.
We’ve identified six key steps that will help banks and other financial institutions reach their net-zero goals.
- Understand net-zero pathways: Review the pathways that lead to the reduction of carbon emissions in each of the sectors that the organization finances. After selecting the most appropriate pathways, set interim emissions targets for each sector.
- Establish baselines: Analyze current portfolio emissions. Set an emissions baseline for each lending sector, and for the whole finance portfolio, so that progress towards net-zero goals can be measured.
- Analyze gap-to-target: Use data modelling to estimate likely changes in the carbon emissions of the current lending portfolio if no further action is taken. This analysis will enable banks to determine the action they must take to close the gap between their current levels of carbon emissions and their net-zero targets.
- Develop transition strategies: Collaborate with the corporate customers that are currently being financed to develop strategies that help them reduce their carbon emissions. Identify levers that will enable them to progressively transform their companies into sustainable businesses.
- Communicate targets: Communicate carbon emissions reduction targets to external audiences using channels such as sustainability reports and mandatory climate-related financial disclosures (MCFDs). Provide frequent updates on the progress towards reaching these targets.
- Embed net-zero objectives across the organization: Identify and implement changes to the institution’s operating model to ensure that its net-zero objectives are embedded across its value chain.
In my next blog post, I’ll examine how banks can establish a sustainability culture and leadership within their organizations.
To discuss ways your bank can achieve net-zero, contact me here.
To learn more about Accenture’s commitment to sustainability, read this report, Climate Leadership in the Eleventh Hour:Read Report