PCAF Standard: Towards Green Financing
In this 3-part series, we show how the finance sector moves from ambition to action on greenhouse gas emissions. Get immersed, get inspired.
More and more banks, investors and insurance companies are joining the finance sector’s fight against climate change. The publication of the PCAF industry standard to disclose emissions related to loans and investments – aka financed emissions – was a turning point. This approach offers a wide range of opportunities for financial institutions. Read on to discover how exactly you could benefit from disclosing your financed emissions and get inspired by some renowned financial organisations.
#1 Set science-based targets (SBTs)
Measuring financed emissions enables you to set science-based targets using the sectoral decarbonization approach of the the Science Based Targets initiative. This in turn allows you to align your investment and lending activities with the Paris Climate Agreement, unlike the traditional ‘potential-based targets’. Long story short, SBTs are undeniably good for the planet. So, if you started reading this blog post in search of an approach to support your own sustainability ambitions, you’ve come to the right place.
To illustrate, Dutch insurance provider Achmea aims for a GHG footprint reduction of 50% in 2030, compared to 2015. To achieve this, they have to be able to measure their financed emissions in a structured manner and set reduction targets in line with climate science.
#2 Innovate your financial services
Measuring financed emissions inspired ABN AMRO Bank to launch the Sustainable Investment Tool for their commercial real-estate portfolio. The online tool shows business owners how their premises rate in terms of energy labels. More than that, it suggests energy-saving measures, such as insulation, LED lighting and solar panels. Good to know: this assessment also includes a calculation of the investment involved, the payback period, and the potential carbon reduction. Needless to say, innovative services like this could give you a competitive edge.
#3 Build trust with stakeholders
By tackling greenhouse gas emissions related to your financial services you show your employees, business partners, customers, suppliers and other stakeholders that you mean business when it comes to climate change. To illustrate, BNG Bank publishes the carbon footprint progress of their credit portfolio on their website. This type of accountability not only inspires trust from current stakeholders but can also attract new ones.
#4 Detect stranded assets
Stranded assets are assets that lose value or turn into liabilities before the end of their expected economic life. For example, an asset could become worthless because of changes in technology, regulation or market conditions. Think of financing a coal mine that can no longer operate because it doesn’t comply with upcoming environmental regulations. Your loan then becomes a stranded asset. Nature published that this phenomenon could translate into major losses for investors in advanced economies. Don’t say we didn’t warn you.
#5 Offer green investment opportunities
Getting a clear picture of your financed emissions not only highlights the negatives; it also allows you to compile a list of investments that are not harmful to our planet, or maybe even beneficial. This is appealing to a growing number of organizations. For example, many institutional clients are looking for customized investment products and related analytical services that support their own climate objectives. Catering to these wishes can open up new business opportunities.
#6 Comply with legislation
The Global GHG Accounting and Reporting Standard for the Financial Industry has been reviewed by the GHG Protocol. It meets the requirements of the Corporate Value Chain (Scope 3) Accounting and Reporting Standard, for Category 15 investment activities. Moreover, using PCAF’s standard enables you to evaluate climate-related risks in line with the Task Force on Climate-related Financial Disclosures (TCFD). In other words, the tailored approach to deal with financed emissions is your best bet to comply with current and upcoming laws and regulations.
Time to step up
Disappointed. That’s how many political leaders felt after the United Nations Climate Change Conference COP27 in Egypt. Although a new ‘loss and damage’ fund was announced for the most vulnerable countries, the outcome was widely judged a failure on efforts to cut carbon dioxide. The world remains on the brink of climate catastrophe.
On the bright side, high-impact industries, such as the finance sector, now have more tools than ever before to take matters into their own hands. And that’s exactly what many organizations are doing. With the help of carbon experts like Futureproofed, a growing number of banks, insurance companies and investors are embarking on a net zero journey. Let’s go for positive impact.
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