the year of carbon and emergence of forward-looking net-zero analytics
by Peter Plochan Throughout 2021, topped off by the COP26 summit (the United Nations conference on Climate Change), attention to climate change and climate risk gained significant momentum and managed to climb up the agendas of leading global policymakers, regulators, corporates and financial institutions. For the financial industry in particular, there were a number of specific challenges (see below) introduced by these recent developments that require attention from risk management and finance professionals.
Industry challenges
Extensinve pressure from governments, regulators, markets & customers
New risks & opportunities from transitioning to Net Zero Economy & portfolios
Increasing financial losses from the changing climate
“This is the Greatest Big Data project for our bank” G-SIB’s head of Climate
carbon accounting and carbon weighted assets In parallel to the climate risk evolution, the bankers, insurers and asset managers alike are paying increasing attention to carbon intensity of their operations, mainly focusing on their financing and investment activities. Following the COP26 summit, the Glasgow Financial Alliance for Net Zero (GFANZ)1, representing over 450 financial firms across 45 countries with total assets of over US$ 130 trillion, committed themselves to fully decarbonize their loan and investment portfolios, and reach netzero portfolio carbon emissions by 2050 with significant decrease achieved already by 2030. In some jurisdictions, banks are already being required to report these so-called “financed emissions”, or Scope 3 emissions, starting in 2022. Using the term “Carbon-Weighted Assets” might be more appropriate because that is what the leading portfolio carbon measurement methodologies, such as the PCAF2 Carbon Accounting standard, are all about.
1 / https://www.gfanzero.com/about/ 2 / Partnership for Carbon Accounting Financials (https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf)
Intelligent Risk - February 2022
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