Andrew Matthews, Associate, Advisory Services, BSR

Financial services companies are critical players in driving the shift to a low-carbon economy, and more are actively managing greenhouse gas (GHG) emissions in their value chains. Last year, 70 percent of financial services companies that responded to the Carbon Disclosure Project (CDP) survey reported on at least one Value Chain (Scope 3) category. While most reported business travel, a few—Citibank and HCP, for example—cited “financed emissions,” or emissions associated with investments in equity, bonds, and project finance.

Behind the scenes, financial services companies are gearing up to do much more. A recent survey by the GHG Protocol has revealed broad interest in the sector to better understand, measure, and manage financed emissions, despite concerns about the complexity of developing a standardized methodology. Furthermore, banks highlighted project finance and corporate finance as a priority for consideration, whereas other investors emphasized equity investments and bonds.

Some frameworks for managing financed emissions already exist. The Carbon Principles increase due diligence for financing decisions and facilitate dialogue on carbon performance related to investments in power companies. The Equator Principles provide a risk management framework for assessing environmental and social risks in project finance, such as major infrastructure and industrial projects. Most banks have also developed internal environmental, social, and governance (ESG) frameworks. And the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard provides its own high-level framework for reporting value chain emissions.

Yet, there is a lack of consensus around exactly how, when, and why financial services companies should measure and report on financed emissions when considering very different company sizes, regulatory environments, and competing priorities. To address this, the GHG Protocol is building on its original Scope 3 framework and hosting a series of workshops to potentially formulate reporting guidelines on financed emissions.

As managing Scope 3 financed emissions becomes more common, BSR will offer its members forums on how to understand the relevance of managing financed emissions and emerging expectations in the context of sustainability.  As we do, we will collaborate with the GHG Protocol to share experiences among financial services sector companies, including at the GHG Protocol’s next workshop in New York on February 25 at JPMorgan Chase.

For more information, please contact Andrew Matthews at amatthews@bsr.org.