What do net zero commitments mean for financial services firms?

2.3 What do net zero commitments mean for Financial services firms?

In its simplest form, committing to net zero means committing to reduce a firm’s emissions on a pathway that aligns to limiting global temperature rise to no more than 1.5° above pre-industrial levels. This commitment should cover all three scopes of emissions in the table below:

Scope 1: Direct emissions

from fossil fuel combustion by sources owned or controlled by the company – i.e. heating a firm’s own buildings, company-owned vehicles, etc.

Scope 2: Indirect emissions

from the electricity generated by sources owned or controlled by the company – i.e. electricity to power a firm’s branches and office space.

Scope 3: Value Chain

all other emissions across the value chain; for FS this is both upstream supply chain emissions, and downstream lending and investment - known as ‘Financed Emissions.’

For most financial services firms, scope 3 (category 15) emissions are both the majority of its footprint, and the toughest nut to crack. Commonly referred to as “financed emissions” – meaning specifically the emissions facilitated via a firm’s lending, investment or underwriting portfolios or individual company -level emissions assessments. To measure these emissions, many are aligning to the PCAF (Partnership for Carbon Accounting Financials) standard.16 Although a standard does not yet exist for underwriting portfolios, PCAF has recently published a draft scoping document for this (April 2022), developed via industry consultation.17 Firms should consider monitoring such frameworks, and proactively engaging via their working groups and consultations to support their evolution, where possible.

16 PCAF (Partnership for Carbon Accounting Financials), 2020, The Global GHG Accounting and Reporting Standard for the Financial Industry. First edition, The Global GHG Accounting and Reporting Standard for the Financial Industry (ghgprotocol.org)

17 PCAF, GHG emissions associated to insurance and reinsurance underwriting portfolios, scoping document, March 2022, PCAF Insurance-Associated Emissions Scoping Document (carbonaccountingfinancials.com)