Research

Environmental Sustainability in Banking: Rising to the Occasion

Overview

The move toward environmental sustainability in banking, particularly in the context of carbon-related initiatives, is seeing increased activity in the US and globally. Sparked by a number of drivers, including regulatory pressures and societal shifts, this push is ushering in new ways of doing business and thinking about financial services as institutions look to reduce emissions across operations and other activities. In this report, we take a look at where the environmental sustainability in banking movement is today, the drivers behind it, and what it means to participate.

Key Highlights

Environmental sustainability refers to the concept of conserving the world’s natural resources to support the viability of the planet now and in the future. While there are many ways the spirit of this idea could be interpreted, for most banks, it generally equates to reducing their carbon or greenhouse gas emissions, with the ultimate goal to get to net zero by 2050 in accordance with The Paris Agreement’s target to limit warming to 1.5 °C.
Interest in such initiatives is taking hold inside organizations across industries, and banking is no exception — in fact, according to a report by Mobiquity, 98% of US banks surveyed say they are prioritizing sustainability as part of their business strategy.
However, as an industry, we’re still working on turning that thinking into action — in fact, while nearly all executives surveyed by Mobiquity reported making sustainability a priority, just 43% are currently planning for sustainable initiatives. That’s likely because sustainability is an area that’s easy to talk about and harder to tackle, in large part because it requires developing ways to track and measure things that have never been tracked or measured before.
The first step is to get an understanding of what exactly you’re supposed to be measuring. According to the Greenhouse Gas (GHG) Protocol, which is widely recognized as the global standard for companies and other organizations that are looking to prepare a GHG emissions inventory, emissions are measured across three distinct categories, called scopes, which include direct and indirect emissions as well as emissions related to your entire value chain.
Scope 1 refers to emissions that come directly from sources owned or controlled by a company, such as boilers, furnaces, or vehicles. Scope 2 includes emissions that occur from purchased electricity a company consumes. And Scope 3 encompasses all indirect emissions outside of Scope 2, including financed emissions, or those related to equity investments, debt investments, project finance, and managed investments and client services.
Understanding these scopes is a good precursor to any other activities. While they do not solve the “how,” they provide a solid and accepted foundation for the “what.” The most important thing to note when looking at Scopes 1-3 is that they cover different kinds of emissions with varying difficulty when it comes to measurement. Specifically, emissions covered in Scopes 1&2, which are related to your own operations, are generally more straightforward to track than those related to activities that occur outside of your own walls (Scope 3).
Most institutions start with Scopes 1&2 — as the inputs necessary are tied to operational data a bank in many cases has on hand (like energy bills, for example) — and only begin to map out an approach for Scope 3 later on. In this report, we profile a couple of banks already on their journeys and how they are working to build their roadmaps. These include Amalgamated Bank, Blue Ridge Bank, Climate First Bank, and MetaBank.
Banks are often at very different stages of progress and experiencing different challenges when it comes to their climate initiatives. There is a plethora of elements that can contribute to a banking institution’s unique experience here, including size, geographic footprint, operational structure, customer demographics, employee demographics, and many, many more.
However, while the specific mechanics are different for every institution, the pieces of the puzzle are the same: Identify the data you need to measure your baseline emissions, gather that data, calculate those emissions, and adjust. The goal is not to build an extensive roadmap on day one, it’s simply to get moving. Among all of the experts and banking executives we spoke to, there is a single prevailing piece of advice they all share: “Just get started.”

The Bottom Line

Urgency around environmental sustainability is growing — from demands by stakeholders to potential regulation to the business and reputational risk involved in staying on the sidelines, pressures are only going to continue to mount. This, coupled with the possibility of participating in and benefitting from new opportunities for financial institutions, is leading to an accelerated push into the mainstream for this novel arena. Once a topic tied primarily to corporate responsibility, it’s quickly becoming an area that executives are looking at for a range of business reasons. That means, for any bank contemplating their own climate initiatives, it’s probably time to get to work.

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