Banks track their carbon impact for environmental reasons
A carbon footprint is a crucial indicator in the fight against climate change, measuring the total greenhouse gas (GHG) emissions caused by various activities, including the operations of a company, its value chain, and for banks, their investment portfolios. This metric is expressed in carbon dioxide equivalent (CO₂e) units.
Calculating the Carbon Footprint
Calculating a carbon footprint involves several steps. First, boundaries must be established, defining which parts of the company or bank are included in the assessment and which activities and processes are considered. Next, emissions are categorised into direct, indirect, and further indirect sources. The data for these activities are then collected, converted into CO₂e using standard emission factors, and summed to obtain the total footprint. Finally, the results are analysed and reported for transparency and strategic planning.
For Banks
Banks follow similar principles but must also account for the carbon footprint of their financial portfolios, known as financed emissions. This involves attributing the emissions of their invested companies to the bank's holdings. Metrics such as the weighted average carbon intensity (WACI) are used to measure the carbon intensity of investments relative to economic value.
Standardisation and Reporting
The GHG Protocol is the leading global standard for measuring and managing GHG emissions, providing detailed guidance for both organisational and product carbon footprints. The Partnership for Carbon Accounting Financials (PCAF) offers tools specifically for the financial sector to account for financed emissions.
Examples and Initiatives
Santander, a leading bank, has taken significant steps towards reducing its carbon footprint. In 2020, Santander's operations became carbon neutral by sourcing renewable energy for buildings and offsetting emissions through initiatives on reforestation, wind energy, and others. Additionally, Santander has developed a Sustainable finance classification system (SFCS) to categorise activities as green, social, and sustainable.
Santander also offers various green products and services, such as green mortgages, energy efficiency loans for heating and cooling systems, and financing for buying or leasing electric and hybrid cars, low-carbon farming, installing or renting solar panels, and other green products that follow environmental, social, and governance (ESG) standards.
Moreover, Santander has initiated several climate change initiatives and programmes, focusing on responsible banking, financial education, financial inclusion, sustainability, diversity & inclusion, and entrepreneurship. A new feature on Santander's website and app even allows customers to measure their carbon footprint.
Banks and other companies measure their carbon footprint with three parameters: emissions from fuel combustion in machines, furnaces, vehicles, and boilers that the business controls or owns, as well as "fugitive emissions" from heating and cooling system leaks and machine breakdown.
The Future of Responsible Finance
Banks are looking to create a more responsible finance industry by promoting green finance and sustainable investment. Banks are required to push through their green transition plans to build a more responsible finance industry. In 2021, Santander stopped using single-use plastics and installed LED lighting at its branches and offices. Santander also pledges to eliminate its exposure to carbon mining worldwide and to stop lending to energy producers if 10% of their revenues rely on thermal carbon, all by 2030.
The carbon footprint forms part of the ecological footprint, an environmental indicator that also includes the water footprint, the land footprint, and the material footprint to measure the Earth's surface needed for human activities, the planet's biocapacity to absorb waste and pollution, and other things.
Climate change and global warming are primarily caused by greenhouse gases (GHG). Several climate change initiatives have emerged in recent years, including the 2015 Paris Agreement, where 196 countries pledged to reduce emissions, become carbon neutral by 2050, and prevent an average global temperature rise of 2°C above the pre-industrial era.
In conclusion, understanding and reducing the carbon footprint is essential for businesses and banks to combat climate change and guarantee resources for future generations.
- Banks, like Santander, are actively promoting financial education as part of their climate change initiatives.
- Financial inclusion is a key aspect of Santander's sustainable finance classification system (SFCS), which categorizes activities as green, social, and sustainable.
- Sustainable finance is not limited to direct investments, as banks must also account for the carbon footprint of their financial portfolios, known as financed emissions.
- To combat climate change, it's crucial for businesses and banks to adopt science-based solutions, such as those found in environmental-science and sustainable finance, in their strategic planning and operations.
