Based on the Paris Agreement–and what scientists are telling us–we need to be carbon neutral by 2050. To have any chance of reaching this target, we need to aggressively reduce our greenhouse gas emissions by 45% by 2030.
The financial sector’s role in the effort to reach net-zero carbon can not be overstated
For a long time, it seemed like the financial sector and climate change were operating on two separate planes of existence. Then, in the lead-up to the 2015 United Nations Climate Change Conference in Paris, it became clear that something had changed. The establishment of the Task Force on Climate-Related Financial Disclosure(TCFD) by the Financial Stability Board in December 2015 was a watershed event. The TCFD’s recommendations provided a framework to help organizations more effectively disclose climate-related risks and opportunities through their existing reporting processes. More than 2000 global institutions, in 78 countries, publicly declared support for the TCFD recommendations. In Canada, 89 institutions of which 57 are financial institutions, support the recommendation, and in the USA, 311 institutions of which 192 are financial institutions, support the recommendation.
We are beginning to see the financial sector wake up
Climate change finally became a line item in standard accounting, and with that, carbon accounting became a necessary step to quantify risks and opportunities.
If the TCFD is a form of self-regulation, more recent developments show that soon, carbon accounting and climate change disclosure will not be a matter of choice for the financial sector.
Earlier this year, the European Central Bank (ECB) set up a climate change center to create a more structured approach to strategic planning and coordination. In Canada, the Office of the Superintendent of Financial Institutions (OSFI) published a discussion paper on Climate-Related Risk. This is a clear signal that Canadian publicly traded corporations should expect regulatory requirements regarding the disclosure of climate-related risk.
In the US, The Federal Reserve Bank of New York formed a Supervision Climate Committee to further build the Federal Reserve’s capacity to understand the potential implications of climate change on the financial sector. In March, John Kerry, U.S. Special Presidential Envoy for Climate, called on Wall Street to start putting their money where their mouth is in regards to their climate public relations and commit to climate-friendly finance policies. In April, New Zealand became the first country to table legislation that requires the financial sector to report on the effects of climate change on their business. In late May, President Joe Biden signed an Executive Order on Climate-Related Financial Risk to help American people better understand how climate change can impact their financial security. This Executive Order directs agencies to analyze and mitigate the risk climate change poses to homeowners, consumers, businesses, workers, the financial system, and the federal government Itself.
What does all this mean to the rest of the business sector?
Financing is like oxygen for the business sector. If your bank, investor, or insurance company starts asking about climate-related risks and opportunities and requests that you disclose your company’s carbon footprint, you don’t really have a choice. As soon as climate-related financial disclosure becomes standard for the financial sector, it will filter down to the entire business sector. If a business’s access to, or cost of, credit is subject to its ability to provide climate-related risk data, that business will have to start looking up its supply chain for the same data. As an example of the power of supply chain programs, Walmart’s Project Gigaton aims to avoid a gigaton of greenhouse gas emissions from its global value chain by 2030 and currently includes more than 2,300 suppliers.
Luckily, carbon accounting standards and methodologies have been around for 20 years. They were developed by a partnership between Greenhouse Gas Protocol and World Business Council for Sustainable Development which published comprehensive global standardized frameworks to measure and manage greenhouse gas emissions from private and public sector operations, value chains, and mitigation actions.
However, carbon accounting brings with it a whole set of challenges when trying to collect, track, calculate, analyze, validate and report a company’s or product’s carbon footprint. The use of a digital dedicated tool can save time and money.
The world has come together to fight COVID, now let’s fight the climate crisis
The past year has been extremely challenging but it also showed us that we are a very resourceful species. With the proper resources, science, and motivation, we can solve very difficult problems.
We don’t have the luxury of time, and we need to use this opportunity to build-back-better.
The US has a new goal to reduce its carbon emissions by 50% by 2030 and Canada’s updated target aims at a 45% reduction by 2030. The financial sector must be on board to drive the required shift across the business sector. We need to measure and manage greenhouse gas emissions and enforce disclosure through regulations.
With the financial sector’s realization that managing climate change risks and opportunities is in its own best interest, I believe we will see a rapid acceleration in global efforts to reduce greenhouse gas emissions. Businesses that don’t measure, manage and disclose their carbon footprint and climate change exposure will find themselves at a disadvantage in this new reality.
Prepare your organization for this wake up
This global wake up is happening, and soon eyes will be on all businesses across the financial sector and beyond. So how can you set your organization up for success? Salesforce's Sustainability Cloud enables organizations with the ability to tackle their carbon accounting and audits at an accelerated rate. If measuring and disclosing your carbon footprint becomes regulated, organizations need to be prepared. Last year, Traction on Demand announced their Carbon Offset Accelerator, which paired with Sustainability Cloud, provides the ability to track carbon project investments, available carbon credits, and associated costs. Empowering organizations to not only track, but actively contribute to the fight against climate change.