View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Special Reports
August 23, 2021

Finance sector makes bold moves on climate change

By Evie Rusman

To ward off climate change, scientists insist the global economy must reach net zero greenhouse gas emissions by 2050. New research from GlobalData looks at what the finance sector is doing to achieve this goal. Evie Rusman writes 

The finance sector does not have a good history when it comes to sustainability – in the five years since the Paris Climate Agreement, 60 of the world’s biggest banks funnelled $3.8trn into funding fossil fuels.Despite this, GlobalData’s thematic research on climate change suggests that the sector is changing its ways. It argues that the financial sector is adding more pressure for net-zero, warning that climate risk is financial risk.The report notes: “Financial institutions are beginning to make bold moves on climate change. As influential stakeholders for companies in other sectors, banks use their power to drive forward the climate agenda and create a more sustainable economy. They are also doing this in response to pressure from their shareholders and customers.”

To coincide with Earth Day 2021, several banks and financial institutions announced initiatives to cut GHG emissions and ensure that their investment portfolios aligned with the Paris goal of net-zero carbon by 2050.

The initiative, the Glasgow Financial for Net Zero, spans more than 160 companies and is chaired by former Bank of England Governor Mark Carney. Its aim is to discourage high-carbon investments and favour low-carbon infrastructure and technologies ahead of COP26, the UN climate talks set for Glasgow in November 2021.

However, the alliance has already been accused of greenwashing by climate activists.

Payments 
Individual payments companies are also introducing company-wide initiatives to become more sustainable. According to GlobalData’s report, data centres hold the promise for carbon reduction for payments companies:

Mastercard

In recent years, payments giant Mastercard has been making bold moves in a bid to reduce its carbon footprint. Mastercard joined RE100, a coalition of leading businesses working towards net zero carbon emissions, in April 2020.

In addition, in 2019, Mastercard generated over 2,600 MWh of renewable energy through solar panels for its data centres.

Mastercard has also installed submetering technology in many of its offices to identify energy-saving opportunities.

In 2018, Mastercard and Doconomy announced a card product designed to provide consumers with tools for climate action: carbon footprint calculations provided by the Åland index, the ability to offset impacts through donations to UN-certified climate projects, and an environmentally friendly payment card produced with biodegradable materials and printed with Air-Ink using recycled pollutants.

And in January 2020, Mastercard launched the Priceless Planet Coalition to unite corporate sustainability efforts and preserve the environment by restoring 100 million trees.

FIS

FIS’ environmental strategy focuses on energy and emissions reduction, energy efficiency, and proper waste management.

FIS is implementing a major multi-year data centre consolidation strategy. In the US, FIS has reduced its number of data centres from 45 in 2017 to 27 in 2019, aiming to consolidate to 14 by the end of 2021.

The company also uses building automation and energy management systems to help reduce the environmental impact at larger facilities. This includes energy-efficient LED lighting and high-efficiency mechanical units.

ADP

Throughout 2019, ADP invested in energy efficiency reduction initiatives, including efficiency, reduced energy consumption, and decreased emissions. Examples include installing LED lighting, implementing new building management systems to increase building efficiency, and a revised travel policy.

Furthermore, ADP is updating its vehicle fleet with fuel-efficient vehicles and investigating opportunities to purchase more renewable energy. And the company’s operations in Barcelona operated on 100% renewable energy in 2019.

Banks

GlobalData argues that banks can be influential when it comes to ESG. For instance, they contribute significantly to GHG emissions through their lending portfolios.However, as consumers become more aware of their lending habits, shareholders are putting pressure on banks to reduce fossil-fuel investments as continuing to do so could harm them reputationally, and in turn financially.As a result, some banks are increasing their low-carbon investments. One bank doing this is Bank of America, which has substantially reduced its exposure to companies focused on coal extraction. Pure-play coal extraction now represents just $155m of its energy sector exposure, down from $762m in 2015.

GlobalData advises that banks can further cut their emissions by powering their offices and data centres using renewable energy.

“Financial services companies may find themselves becoming climate advisors, driving their portfolio companies’ sustainability agendas and forcing these companies to act on climate change,” adds the report.

Reporting frameworks 
Alongside pressure to up sustainability initiatives, financial institutions are also being pressed to be clearer when disclosing environmental risks.In June, a number of institutional shareholders of some of the world’s largest companies joined a campaign for better reporting on climate and green issues. The Carbon Closure Project (CDP) looks to ensure that data on climate change, deforestation and water usage are properly reported on by companies.Through the project, investors are targeting 1,320 companies, including Amazon, Alibaba and Facebook, who have all been accused of failing to report data correctly.

Last year, CDP’s campaign encouraged 206 companies to respond to disclosure requests by investors, up from 97 in 2019. This is promising as it is evident companies are more willing to cooperate.

 

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Wednesday. The industry's most comprehensive news and information delivered every month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Retail Banker International