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At the end of last year’s COP28 summit in Dubai, the EU and world leaders committed to transitioning away from fossil fuels - the main driver of climate change - and reducing global emissions by 43% by 2030.
As we settle into the new year, attention must now swiftly turn to how this landmark agreement can be turned into reality and what individual industries must do to rapidly reduce their carbon footprint and transition to net zero successfully.
Getting under the skin of a complex challenge
When it comes to financial services, this challenge is no exception. A recent report from Greenpeace found that the investments held by the UK’s largest banks and investors emit 805 million tonnes of carbon per year, almost double the UK’s domestic emissions.
Financial institutions will play a crucial role in the transition to a greener economy. For banks in particular, efforts to reduce their impact on the environment, promote good governance and social responsibility are going to be critical.
But if they are to do this, it’s crucial they fully understand the financed emissions of not only their own business, but that of their supply chain – which can often include a fragmented network of providers across different markets.
It’s a real challenge to tie things together, and it’s fair to say it’s now front of mind. HSBC’s head of ESG research recently described Scope 3 emissions as the “elephant in the room” when it comes to climate change. He went on to say that Scope 3 emissions are a useful indicator for examining climate risk and therefore the true climate ambition of companies, with a need for investors to start examining disclosures more closely.
There is also a lot of scrutiny on the insurance sector, with ClimateWise reporting that financed and insured emissions continue to be the most challenging for insurers to measure and disclose.
Insurers are keen to better understand the inherent risks across their customer base and supply chains – and with worsening environmental disasters, such as the recent spate of floods across the UK, this certainly makes sense.
Staying ahead of the regulatory curve
At present, the UK has no single ESG law or regulation, with policy consisting of domestic and EU-derived laws and regulations. But as part of the Edinburgh reforms back in December 2022, the government announced it would be exploring a potential regulatory regime for financial providers.
In light of the growing attention from regulators, there has been an increasing focus on the need for banks, financial institutions, and insurers to properly understand, disclose, and reduce their Scope 3 emissions.
This is not just important to meet upcoming regulatory requirements but also to meet evolving customer demands.
New tools for a new year
So how can forward-looking financial services firms and insurers respond, and stay compliant in the future? We believe innovative new tech-led solutions are needed to enable banks, insurers, and other corporates to assess the environmental, social and governance (ESG) profile of their UK and EU based suppliers, partners and customer portfolio quickly and effectively, thanks to a pioneering new data repository and scoring service.
ESG Analytics from CRIF draws on over 130 key indicators derived from UK and EU information sources, analysing information on important areas such as a business’s water usage, waste production, emission, health and safety record, modern slavery, and inclusiveness.
They can know more about the businesses they work with and how compliant they are with ESG principles, in turn helping inform their decision-making as they strive to meet their own sustainability goals.
We’re seeing a new wave of solutions entering today’s global market which can help companies to protect their reputation by minimising potential risks and putting remedies in place to deal with any ESG exposures of their customers and suppliers. Importantly, this will help firms to meet future reporting and compliance requirements with greater confidence.
We’re working with regulatory bodies all around the world and partners to help set the future international standard in corporate sustainability, and I urge those working across the financial services and insurance sectors to adopt the same mindset as we all seek to protect the planet for future generations.
This content is provided by an external author without editing by Finextra. It expresses the views and opinions of the author.
Oleksandr Strozhemin Co-founder and CEO at Trinetix
13 August
Elaine Mullan Head of Marketing and Business Development at Corlytics
12 August
Abhinav Paliwal CEO at PayNet Systems- A Neo Banking Software Platform
Donica Venter Marketing coordinator at Traderoot
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