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How Banking Institutions can Help Steer Towards a Sustainable Economy

The effects of climate change and the environmental crises we are moving towards seem to be making the news more than ever before. The actions of activists like Greta Thunberg, amongst others, have successfully mobilized younger generations to take a more active stance in order to safeguard the quality of their future. Sustainability is at the focus of everything we do.

It may not always seem like it, but every industry can take the necessary steps to become more sustainable. This will help pave the way towards a better future as opposed to the path we're currently on. The financial sector also plays an essential role in this, since sustainable financing has proven that money can also be a force for good.

Becoming Part of the Solution

The entire world comprises around 25,000 banking institutions in total. However, this doesn't mean that all of them are socially responsible. A handful have made strides in their goals towards becoming more sustainable, while others are still struggling to grasp the difference their actions can lead to. Stakeholders and customers now expect banks to be more environmentally conscious than ever before.

Additionally, a coalition known as the Network for Greening Financial Services released a report outlining how climate change will threaten the financial sector. The open letter outlines these threats in more detail and calls for unity between countries regarding this issue. Firms that fail to get on board with this new agenda may also have to cease operations in the near future.

Paving the Way to a Low Carbon Economy

Probably the greatest issue banks face is the actual measures they can realistically put into place to steer towards a more sustainable economy. Decarbonization is the biggest shift of them all, which can potentially lead to global warming becoming limited to 1.5 °C. This initiative was first called to attention during the Paris Climate Change Summit of 2015, by Dutch bank ASN.

The group agreed to begin surveying the emissions of greenhouse gases spurred on by loans and investments. This led to the creation of the PCAF which was the first platform of its kind in the financial industry, utilizing the integration of SAAS applications. These are web-based software programs that allow institutions to oversee the carbon emissions caused by loans and investments.

Measuring Carbon Emissions

Institutions can actually benefit from these carbon emission-monitoring systems, since they allow more monitoring and creates a more transparent image to present to stakeholders that goes beyond the organization's carbon footprint. The data gathered can be used to set new targets and pave the way for investments to be more low-carbon. A project is currently in the works for next year.

Rather than setting illogical targets, using scientific guidelines in line with global objectives will allow help financial institutions to implement science-based targets. Like this, banks can get a clearer picture of how much and by when they need to limit greenhouse gas emissions to line up with the Paris climate goals of 2015. Members of PCAF are also co-sponsoring this project.

A New Sustainability Methodology

This methodology will show clients and stakeholders that financial institutions are taking responsibility by taking action. Implementation of this methodology aligns with the UN Principles for Responsible Banking, an initiative that aims to fast-track the banking sector's commitment to achieving the goals outlined in the Paris Agreement. These frameworks are necessary to hold financial institutions accountable for their greenhouse gas emissions.

The Triodos Bank Example

A perfect case study for this is Triodos Bank, which now provides mortgages with lower interest rates for higher environmental standards. The bank worked with customers to lower emissions. However, the data released could be considered confusing as certain avoided and sequestered emissions recorded would not actually cancel out emissions generated by the transactions. This leaves the actual achievements a little unclear.

Carbon Accounting

The carbon accounting movement in the financial sector will allow institutions involved to be held accountable for their actions and contribute towards a more sustainable future economy and society. Taking the necessary action now and getting on board ASAP will also work in banks' favour as what is a recommendation today will no doubt become a mandatory requirement in the future.

The good intentions behind these initiatives are bolstered by the fact that they are being taken seriously and led by individuals and organizations that have the knowledge and power to take things to the next, actionable level. The urgency with which these next steps need to be followed through should also be noted since we're already in danger of being “too late”.

Sustainability in the Banking Sector's Future in light of these initiatives and frameworks in place, banks and financial institutions now have a clearer idea of what steps need to be taken to achieve and surpass targets set for them. There's no denying the road will be a long and difficult one, but there's hope that all measures are doable, and will change the future of the economy.

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Comments: (1)

Richard Peers
Richard Peers - ResponsibleRisk Ltd - London 28 April, 2021, 16:12Be the first to give this comment the thumbs up 0 likes

thanks great contribution Peter