The journey to net zero starts with data
- In the wake of greenwashing accusations, financial institutions are turning to data service providers for proactive strategies.
- Data service providers allow banks and financial institutions to assess and manage their carbon footprint using scientifically backed benchmarks.
The transition to a net zero economy is not a walk in the park. Nonetheless, it is a journey that the financial sector must take seriously as the Paris Agreement 2030 deadline is fast approaching.
In the wake of ongoing ESG debates, greenwashing accusations, and lack of clear regulations, banks, and financial institutions are turning to data service providers for proactive strategies.
Data service providers allow banks and financial institutions to assess and manage their carbon footprint using scientifically backed benchmarks, thus substantiating their claims and eliminating greenwashing. In addition, these platforms also allow them to provide emissions footprint information to their end consumers, satisfying the increasing customer demand for transparency and accountability.
Companies like Doconomy and Plan A are leading the way in helping financial institutions reach net zero emissions deadlines. Their methodologies help banks manage their carbon footprints and provide emissions footprint information to their end-consumers by calculating the impact of their spending.
According to Mathias Wikstrom, CEO of Doconomy, the financial sector sits at the core of the transition to net zero. Banks and financial institutions already work within existing data infrastructures (albeit in dire need of modernization) to facilitate transactions and carry out their daily operations. In addressing climate change, Wikstrom suggests that the most efficient way for banks to reach net zero emissions is to use their existing financial data to gather carbon-related insights.
“We have such tremendous efficiencies within the financial system. If we’re going to get it done within the 2030 and the 2050 deadlines, as stated by the IPCC and many other leading science reports, we need to make use of what we already have in place,” he told the audience.
Doconomy is a data services provider that uses existing financial rails to help companies reach net zero targets. It can allocate a carbon intensity score on every transaction and assess its environmental footprint. Seven years in the making, the company now services 35 banks and reaches over 750 million users.
In shifting the mindsets and perceptions of decision-makers about climate change, Wikstrom believes that education remains the biggest hurdle. To overcome this problem, Doconomy has partnered with the UN to develop a free lifestyle calculator so individuals can personally track their carbon emissions and make well-educated purchasing decisions.
Another company offering emission reduction services is Plan A. Based in Berlin, it is a SaaS platform focusing on decarbonization. The platform goes much further than the assessment and prescribes practical steps businesses can take to begin their journey of decarbonization.
According to Lubomila Jordanova, CEO and co-founder at Plan A, the first step that any company can take is to develop the habit of collecting data, irrespective of how accurate. The second step is to commit to taking action that affects tangible change. That could take the form of simple team meet-ups to discuss climate change. Just those two things, done well and consistently, companies can stay abreast of regulation and have a positive impact.
Today, one of the biggest challenges facing financial institutions when it comes to reporting carbon emissions is the issue of data gaps. According to the Climate Risk Stress Test Report 2022 published by the European Central Bank, forming standardized data, particularly regarding Scope 3 emissions, remains an issue.
Scope 1 and 2 emissions are easier to quantify as they relate to on-site and purchased energy emissions. But Scope 3 is particularly challenging for financial institutions, as it would be the carbon emissions resulting from loans and investments, which are their products. These could include everything from real estate to fossil fuels and other carbon-intensive products.
Another challenge facing banks and financial institutions centers around climate policies and impending regulation. The SEC Climate and ESG Task Force are prowling for ESG-related misconduct in the U.S. While across the pond, regulators are also cracking down on greenwashing within the financial sector, exemplified by the case of Deutsche Bank.
“The truth is that the sector has had systemic challenges with the topic of ESG purely for the fact that the framework has been historically misunderstood,” noted Lubomila Jordanova at Tearsheet’s inaugural Banking on the Planet conference.
“There’s definitely a lot of movement, but yet, not enough results that can allow us to celebrate success,” she added.
The ESG framework, according to Jordanova, is a “more in-depth approach to the real cost” of our actions, and this is becoming evident as financial institutions are starting to incur substantially larger climate risk-related expenses on their balance sheets.
The race to net zero is a collaborative effort rather than a competition. Carbon data service providers for banks and financial institutions are the first step in the right direction. We all need to raise the level of education and awareness around the topic because we shall all lose if we do not win the fight against climate change.