EY-Lets-talk-sustainability2

Climate change | Beyond compliance | Emissions | Reporting
Banking on the benefits
of accounting for GHG
emissions
Chris Hagler
Southeast Practice Leader,
Ernst & Young LLP
chris.hagler@ey.com
The financial services industry is
playing an increasingly important
role in the transition toward a lowcarbon
economy while simultaneously
discovering new business opportunities.
Like other organizations, banks have
worked to reduce the GHG emissions of
their operations. However, banks can
have an even bigger impact through
their financing of “low or no carbon”
investments.
External stakeholders recognize this,
and a growing number of socially
responsible investors, shareholders
and non-governmental organizations
(NGOs) are asking financial institutions
to account for their financed emissions
in addition to the GHG emissions they
generate directly from their operations.
These NGOs and investor groups seek
to engage financial institutions on this
topic, by often submitting shareholder
proposals requesting that the company
report quantitative measures of direct
and indirect emissions and set goals
for reducing the financed emissions in
their portfolio. As these committed and
vocal groups seek to reach investors
and consumers with their messaging,
the measuring and reporting of the
environmental impact of investment
portfolios is becoming a reputational
challenge that is demanding more
attention than ever.
Measuring banks’ Scope 3 GHG
emissions — indirect emissions that result
not from an organization’s activities,
but arise from sources that are owned
or controlled by others – throughout
their investment portfolios is far from a
refined science. Organizations like the
World Resources Institute (WRI) and the
United Nations Environment Programme
(UNEP) have convened working groups
to create Financial Sector Guidance for
the Greenhouse Gas Protocol’s Corporate
Value Chain (Scope 3) Accounting and
Reporting Standard, which will form the
basis of future reporting requirements.
Meanwhile, some financial institutions are
taking the lead and developing methods to
measure their financed emissions.
For banks, financing low or no carbon
emitting projects not only mitigates
reputational risks, but also has tangible
business value by uncovering new
opportunities. Indeed, large financial
institutions are already acting on these
opportunities. Take for example the
recent green bond and “green” or energy
efficient mortgage programs. These
programs offer fixed or discounted
interest loans to fund renewable energy
and home energy efficient projects and
have opened up new markets for banks
while providing a valuable service to
their clients. The opportunities are great,
and financial institutions now have the
opportunity to accelerate the transition to
a lower-carbon economy.
Measuring and reporting on the
environmental impacts of financing low
or no carbon projects and investments
can position banks as leaders in moving
toward a lower carbon society. Credible
measurement and reporting helps
to demonstrate a clear commitment
to strong environmental, social and
governance (ESG) programs and reporting
on them helps improve brand reputation
and bolster transparency and credibility. •
A growing number of
socially responsible
investors, shareholders
and NGOs are asking
financial institutions to
account for their financed
emissions.
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Let’s talk sustainability