The Climate of Business #22: Can a bank really be net-zero?

What is your definition of gas? What about nuclear power? What if I use these energy sources to transition while you don't? Then I am sustainable and you aren't, but we both use these sources which are not really sustainable, therefore we both aren't?! While we discuss what should be latest definition of these terms, the EU and the Taxonomy shared their own opinion this week that saw a dramatic response from the investment community (and Greenpeace). And rightfully so. If we start labelling everything sustainable, while we "transition to a sustainable economy", the clock towards 1.5 degrees will all of a sudden shorten the days and redefine time. Similar to this confusing redefinition of gas and nuclear.

For businesses, investors and board members, the discussion is relevant as it hinders the progress of those who have been investing in become more sustainable or making their portfolios more sustainable. For this reason BlackRock and VanGuard among others, criticised the proposal for "seriously compromis[ing] Europe’s status as a global leader in sustainable finance."

Climate Change Reality

A quarter of California’s annual carbon emissions could be trapped by 2030 through compost and crops (The Verge)

Gas stoves are constantly leaking methane gas - even when off (Euronews)

The future of Winter sports under climate change (Sky News)

What’s the best way to tackle COVID and climate change? Anthropology (EuropeanSting)

Homes falling into the sea, as sea levels rise (Independent)

Norway blows up hydro dam to restore river health and fish stocks (The Guardian)

700 million promised to protect the Great Barrier Reef (Reuters)

How sunflowers are adapting to climate change (CTVnews)

Measuring climate change: let’s not forget about humidity (APnews)

Kenya’s El Molo people are a great example of the consequences of rising waters (The Guardian)

Business Climate Reality

Are wealthy companies using the facade of ‘nature-based solutions’ to enact a great carbon land grab? (The Guardian)

Major carbon emitters together with US climate enjoy John Kerry in the first international climate meeting after COP26 (CNN)

Business schools could do more to address climate crisis (Harvard Business Review)

Italy’s business leaders talk climate change with Vladimir Putin as Ukraine crisis heats up (Financial Times)

Soaring fossil fuels prices may deal a blow to climate goals (The Guardian)

Iraq’s conundrum: Oil reliance or vanishing water (Aljazeera)

How Businesses Predict Climate Change Risk Using A Geographic Approach (Forbes)

Patagonia CEO: Banks need to stop financing the climate crisis (Fortune)

What Fossil Fuel Companies should do to help fight climate change (TIME)

Is the West a ‘climate hypocrite’ when it comes to other countries? (The Guardian)

Reality Check

In 2021, the UN launched the Net-Zero Banking Alliance for banks that were willing to commit they will reach net-zero carbon emissions across their lending portfolios by 2050. The new group includes 53 of the biggest banks from 27 countries with $37 trillion in assets.

Why did this Alliance create a big buzz?

Because the banks that signed up have put their credibility on the line. If they don't demonstrate progress, on this big commitment made, by making the more investments in the sustainable transition or by divesting, they will be scrutinised.

Why are banks critical for the global decarbonisation agenda?

The financial sector is at the core of our economy and defines the direction in which the wind blows for the corporate sector, but for all businesses as a matter of fact. With their loans, the underwriting of corporate stock, bond offerings, investment portfolios they change the mindset of the many. They work under the close governance of the regulators, shareholders and communities.

What can banks do to support the transition of the economy to a sustainable model?

Invest and divest. UNEP FI estimates that for full decarbonisation, the world needs investments in the order of 5 to 7 trillion USD per year (UNEP FI). In the meantime, tens of trillions of dollars are spent yearly on the exploration, extraction, refinement, and transportation of fossil fuels. On top of this we have the building, sale, installation and use of things that burn fossil fuels to generate electricity, transport people and goods. All of these activities have to be funded somehow and this is the key to the global decarbonisation agenda.

Can banks decarbonise the economy alone?

No.

Even in Europe, which is far ahead of the US, there is a $4 trillion mismatch between the available pool of money and the corporations that currently qualify as Paris-aligned, according to a recent report by?CDP-Europe and Oliver Wyman.

How can banks decarbonise?

• Assessment - banks need to start measuring their full Scope 1, 2, 3, meaning incorporating in their assessment of climate related risks all financed activities. At the moment this is mainly done with the use of averages which leads to inaccurate calculations, that can be off with around 20-30%.
• Committments - the NZBA is a step in the right direction as the committed banks really have made it clear sustainability is a priority for the future and if they don't deliver they can expect backlash. Openly committing to mitigating climate risks by divestment and implementing sustainable finance practices allows for those trusting their money with a certain financial institution to be assured their money will be there as the crisis unfolds.
• Engagement - You can't decarbonise without working with your Scope 3 and given how diverse the definition of this is for the financial sector (see visual below), you need to get these stakeholders engaged fast as they require time to implement.

What else can help?

• A global emissions database - ideally open-source and free, so products can be build on top - with this we can create reliable benchmarks and set net zero agenda for clusters of industries even
• A clear carbon tax - businesses, and respectively banks, need a universal way to estimate the volume and cost of carbon.

• A global agreement on the accounting practices related to carbon - we need a universal language when we are assessing the progress on decarbonisation. At the moment there isn't full clarity which businesses emit how much.

Carbon Price

We are hitting 100 EUR in days...

Happy Friday!