Many financial institutions measure and report their own greenhouse gas emissions, but the real impact is in their value chains. In 2013, only 6% of financial companies in the FTSE Global 500 reported any emissions associated with lending and investment portfolios to CDP.
To address this gap, the Greenhouse Gas Protocol (GHG Protocol) and the United Nations Environment Programme Finance Initiative (UNEP FI) have begun developing guidance to help financial intermediaries assess the emissions from their lending and investments portfolios.
According to the World Resources Institute (WRI), the financial sector will need to better understand its exposure to GHG emissions, as the world needs to make the transition to a low-carbon economy. Currently, most banks only measure emissions from their own operations, which, in fact, are much smaller than those associated with their lending and investing activities.
That’s why financial institutions need a standardized, credible method to measure, understand and report the full breadth of their impacts. Even though the direct GHG emissions of financial intermediaries are relatively small, the sector has an important role to play in the shift to a low-carbon economy by acting as market makers, capital providers and advisers.
In the last 10 years, more than a dozen GHG assessment methodologies have been developed by financial institutions and advocacy groups. However, the level of reporting remains low.
One reason is the lack of an internationally harmonized accounting method tailored to the needs and characteristics of financial intermediaries. Practitioners have also identified a set of technical challenges and barriers that have kept the sector from systematically accounting for and reporting on emissions from their lending and investment activities.
There is a clear, long-term interest from various stakeholders in assessing the emissions associated with lending and investment portfolios. Banks should annually report on the emissions attributed to their most carbon-intense business portfolio. However, no standardized assessment tool currently exists. Introducing a credible, internationally harmonized approach would be a crucial step in getting the industry and its stakeholders key information.
In October 2013, UNEP FI and WRI hosted the 1st Advisory Committee meeting about the Greenhouse Gas Protocol Financial Sector Guidance to begin the guidance development process. The guidance will be a Supplement to GHG Protocol’s Corporate Value Chain (Scope 3) Standard.
The launch of this initiative follows an extensive, eight-month scoping exercise that reaffirmed the need for this guidance. The GHG Protocol Financial Sector Guidance will be developed over the next two years through an inclusive, multi-stakeholder process.
As reported by the UNEP Finance Initiative, while goods and services of all types are increasingly subject to standards and regulation requiring appropriate client information and transparency on environmental and social issues, there is often limited, or no information, about the sustainability impacts of financial products and services.
Without such critical information, responsible financial institutions receive no benefit, and proper differentiation between sustainable and non-sustainable financial products and services by end users remains difficult.
A global collaboration led by WBCSD and WRI, the Greenhouse Gas Protocol (GHG Protocol) provides the foundation for sustainable climate strategies and more efficient, resilient and profitable organizations. GHG Protocol Standards are the most widely used accounting tools to measure, manage and report on greenhouse gas emissions.
The UNEP Finance Initiative
Founded in 1992 in the context of the Earth Summit in Rio, the United Nations Environment Programme Finance Initiative (UNEP FI) is a platform that associates the United Nations and the financial sector globally. With over 200 members representing Banks, Insurers, and Investors from around the world, UNEP FI contributes the perspectives of financial institutions to the various United Nations and global activities on sustainable finance. UNEP FI’s mission is to bring about systemic change in finance to support a sustainable world, which is highlighted in its motto, ‘Changing Finance, Financing Change’.
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