The financial industry faces a big shift before the end of the decade, with investment firms facing pressure from multiple stakeholders to decarbonise investment portfolios. The need for firms to take action now was one of the themes in the keynote conversation by UN Special Envoy for Climate Action and Finance and former Bank of England Governor Mark Carney at GreenFin22 in New York. “People have signed up for a lot, and now we’re into translation of commitment into action,” he said.
Going from 10,000 Feet to Ground Level with Emissions Data
As financial institutions look to align their portfolios with the Paris Agreement, they are going to need accurate, credible data. “Having the right information— true emissions level data as opposed to estimates— and having it all the way through the value chain,” is key according to Carney. He pointed out that reliable, accurate emissions data is the lynch pin because only when you have the proper data can you disclose properly. “There is a forward-looking element to that which requires some judgment— judgment based on hard granular data,” he said.
However, getting that data is not easy. “Moving from estimates and scores to real emissions data” and “moving from targets to actions by portfolio companies” is a top challenge, according to Carney. But while it appears daunting to collect accurate data on Scope 3, Carney reminded the audience that everyone’s “Scope 3 is somebody else’s Scope 1” and “the levers are in place to get that information.”
Once companies have that information, Carney pointed out that it’s time to “identify the low-hanging fruit” which will help portfolio companies “build credibility through progress” on emissions.
Granularity Makes a Difference
Carney also discussed how investing in the transition to a low carbon economy and having accurate emissions data can lead to greater value creation. “In those areas where there is better information and more action - more prospective action - you’re getting valuation premium,” said Carney. He highlighted European public equities where there is a “fairly high correlation between portfolio alignment - alignment to the transition to net zero - and valuation.”
And it’s mutually reinforcing for climate action because “when companies really have the information, they trigger greater action. There’s much more confidence about the actions they’re taking because they know they’re removing real emissions as opposed to estimates.”
Staying the Course
In closing, Carney said the challenging global economic climate only strengthens the need for climate action. While he acknowledged that in the short-term, adjustments might need to be made to shore up global finances, he urged companies to focus on their medium-term climate commitments. Companies are “relying on the financial sector to do what we said we are going to do” in terms of emissions reporting.