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3 reflections over a year with guidelines for financed emissions



As the Science Based Targets Initiative (SBTi) guide for funded emissions celebrating its one-year anniversary, we want to share three reflections from this very hectic year of working with our insurance and banking customers on their net zero target.

Highlights

1. The overall concept works: We applaud defaulters (especially PCAF and SBTi) and founders of industry practitioners (especially GFANZ) who found a way to elevate financial services organizations as managers of net-zero progress in other industries. They make emissions a new hard currency to take into account.

2. There is no one size fits all: While science remains the same, the application in each organization is unique. We have seen everything from a top-down diagnostics of three months to multi-year bottom-up work that engages a wide range of internal stakeholders in industrial sectors and business units directly.

The toughest part is yet to come: While the current calculations of the baseline and reduction targets are already perceived as a heavy lift, the devil is and will be in the details of implementing real reductions in addition to these commitments. But only this will give us the desired effect on the climate, so we must shift our attention to this operationalization.

Let’s celebrate the concept of funded emissions!

COP26 started the green turning point with 40% of the global assets under management set at net zero. It makes insurers, borrowers and investors responsible for the emissions from their investments and customers and uses its influence over all other industries for good. In fact, it is establishing the financial sector as a powerful new zero-zero manager alongside the public sector.

Financial institutions have three key packages they can use:

  1. grow with the masters of the green transition
  2. potentially not renewing customers who do not make an effort to develop
  3. most importantly, to engage the existing customer and investor base (ie not just play “carbon chess”)

Commitment requires the front line to assess and advise on industry-specific carbon dioxide emission plans and will finance them in new ways. It offers insurers and banks a way to go beyond the transactional relationship to a new level of relevance and partnership with their commercial customers. This also means that a lot is at stake for the customer companies, and that they – as much as the insurer and the bank – need to create solid transition plans. Emissions will be a hard currency according to the CROs we worked with.

Take an approach that suits your organization

Our second point is about this careful elaboration of emission baselines and transition plans. There is, in fact, a wide range of approaches when launching the net-zero agenda, from centrally organized top-down roadmaps to bottom-up ones that immediately involve key relevant teams within the organization. The former is faster and provides a good overview and starting point, but more detailed work and stakeholder engagement must follow. The latter involves the stakeholders needed for the transition from the beginning. While it may help prevent the “not invented here” syndrome, it carries the risk of overwhelming the organization, especially when facilitators such as education and data infrastructure built in parallel are not yet fully available.

The toughest part has not yet come

Even if an organization chooses from the bottom up, implementation will involve challenges. Achieving net zero by 2050 or earlier will require profound reductions in emissions, which will require most of the department’s adaptive energy: broad skills development initiatives, reliable data infrastructure and modification of existing processes.

For example, when an insurer makes the decision to stop investing in coal, that decision must be integrated into data collection, investment decision-making processes, front-line activation, and incentive adjustment. It is crucial not to lose momentum after the first emissions reporting, but to really build the tools to follow up.

We look forward to hearing your progress and observations of this first year with guidelines for funded emissions and to continuing to drive forward with you in the years to come!


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Disclaimer: This content is provided for general information purposes only and is not intended to be used in consultation with our professional advisors.


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