Long reads

Road to Net Zero: The clock is ticking for financial services leaders

The goal is an ambitious one: the government wants to make the UK the world’s first net zero financial centre. In 2023, most large firms and Financial Services Institutions in the UK will need to start publishing detailed plans for how they intend to hit net zero, under proposed Treasury rules. These plans will need to include clearly defined decarbonisation targets and tangible steps detailing the path to progress.

With less than a year until these rules take force, the clock is ticking for many financial institutions. While every organisation in every sector has a part to play in building a greener future, the financial services industry will play a crucial role in both financing and accelerating progress. Money talks. And when it comes to the journey to net zero, it also actions.

The net zero ambition-action gap

Despite strong ambitions to transform, recent research from Microsoft UK reveals that the Financial Services Industry is facing a net zero ambition-action gap. At the current rate of progress, only 16% of financial institutions surveyed will reach net zero by 2050, which is significantly lower than the national average of 41%. Meanwhile, 73% are so far struggling to back up their climate commitments with tangible reductions in their carbon footprint. Furthermore, just 29% of firms currently apply environmental standards in their supply chain and 63% admit to not taking the role and value of natural capital into consideration in planning and operations.

This needs to change. As the Chancellor seeks to create a science based ‘gold standard’ for transition plans, drawn up by a new Transition Plan Taskforce, distant, top-line decarbonisation targets won’t cut it. Rather, financial institutions will need to set robust milestones that contain explicit, quantitative commitments on their transition to a low-carbon economy.

This includes using digital carbon measurement tools to ensure any progress reported on net zero accounting statements is indeed genuine progress. In the long run, becoming net zero by 2035 should be considered a realistic goal and pursued vigorously. Here, technologies such as cloud, carbon measurement tools, digital twins, AI and data analytics can play a crucial role in pinpointing gaps, measuring impact and accelerating progress.

Technology has transformative potential  

Technological innovation is vital for improving environmental sustainability. From switching to less energy intensive digital infrastructure, such as sustainable cloud solutions and virtual collaboration tools, to using carbon calculation systems to understand and take charge of their emissions, digital technologies represent an increasingly important part of any organisations’ ability to shrink its climate footprint.

Looking to the future, there also needs to be greater commitment and investment in research & development for technologies that are both financially accessible and greener. More sophisticated solutions such as Robotic Process Automation (RPA) can help a business to enhance their sustainability goals, when applied to carbon emissions measurement, machine learning and digital twins.

From IoT for climate risk adaption strategies or AI, cloud and data science for robust emissions measurement, technology has transformative potential to help us solve some of our biggest climate challenges. If firms mobilise the will to better understand and access digital technologies that help with end-to-end carbon reduction strategies, the UK has a genuine chance of meeting the government’s goal of becoming the world’s first net zero financial centre.

Change the mindset, change the world

Perhaps it’s unsurprising that when categorising financial institutions according to their progress on sustainability, the vast majority (73%) rank as aspirational: better at creating ambitions and designing strategies than actually executing and operationalising outcomes. Only 13% could be classed as sustainability leaders: those at the forefront of sustainability execution that are on track to meet their net zero targets quickly.

The challenges the vast majority are experiencing are clear: many lack the ability to take action due to not having a clear organisational sustainability strategy plan in place. This coincides with a lack of in-house skills and expertise as well as a corporate mindset that must now shift towards more sustainable business operations. Finally, getting the most out of the available technology to support their efforts is a factor, alongside calculating the costs involved in revolutionising from a sustainability perspective.

Those businesses that are leading the charge are distinguishable by their willingness to invest in innovation and deepen their understanding of the costs/benefits of a sustainability strategy. Many are also taking steps to embed carbon emissions reduction in their accounting and measurement processes – a key focus of the Bank of England.

The time of pledging without action is over

It’s true that taking action on sustainability could be considered daunting for many businesses, but the time has come for leaders to cease simply paying lip service to the cause and embed real change into their business operations moving forward.

Pledges must shift to progress – and not only to help financial institutions boost their own sustainability outcomes. Through innovative financial instruments, by reducing exposure to high carbon sectors and by developing an accurate way to measure a portfolio’s carbon footprint, the industry can be a catalyst for sustainable growth and investment across the entire UK economy. Every organisation, especially those with the largest scale and influence, has a duty to create true systemic change – for the climate’s sake.

Comments: (1)

Richard Peers
Richard Peers - ResponsibleRisk Ltd - London 11 July, 2022, 09:13Be the first to give this comment the thumbs up 0 likes

Thanks for sharing your thoughts Craig.  What's the best example of FSI's making progress using these technolgies to achieve these goals?