Sibos 2022: Achieving net-zero across an FI’s value chain
It’s a year since I wrote an article for Sibos that talked about the challenges faced by the finance industry regarding climate change.
COP26 in November 2021 proved to be a pivotal moment. The loudest voices seemed to be coming from the finance industry, especially with the launch of Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of leading financial institutions committed to decarbonising the economy.
Since then, the industry response has been incredible, with businesses across all financial sectors committing to net-zero targets by 2030. In 12 months, it has gone from what felt like a minority interest to taking centre stage at many institutions. C-suite executives now have decarbonisation KPIs as part of their targets.
Many financial institutions (FIs) are now looking across their value chains for opportunities to decarbonise but are quickly discovering what a complex mission this is.
A useful starting point is the Greenhouse Gas Protocol’s “Scopes”.
Scope 1 covers direct emissions from owned or controlled sources, for example, air conditioning or heating produced on-site. Scope 1 also includes the brilliantly termed “fugitive emissions” from leaks or spills. Scope 2 covers indirect emissions from purchased electricity, heating or cooling (generated off-site).
Scope 3 includes all other indirect emissions in a company’s value chain and is where most of a company’s emissions are, including purchased goods and services, business travel, employee commuting, the use of the company’s products and services by customers and investments.
But decarbonisation is like the mythical many-headed hydra. Solving one issue creates others, and associations are being spun up to support members to address this complexity and advocate for a more holistic approach.
One such association is the newly formed Sustainable Trading (ST), which aims to set the standard for ESG best practices across the financial markets trading industry. ST has identified the need for providing practical advice as a priority across member businesses, formulating best practices and developing principles to ensure a more sustainable future.
The finance industry has many opportunities for gains (both marginal and significant) in carbon reduction through taking a holistic approach.
Suppose a company commits to the goal of net-zero. In that case, it must act across the organisation rather than relying on a few token efforts, e.g., biodegradable cards and off-setting.
Imagine any modern finance business organised across technology, propositions, operations and marketing.
Starting with technology, a major consideration for the FI will be its data centres that run applications and provide storage. Data centres use about 1-2% of global electricity—the same as powering 32 million homes.
FIs are now putting pressure on data centre companies and their suppliers to reduce their emissions, and the data centre companies are responding – some incredible innovations are happening.
For example, the US/Israeli company ZutaCore has developed a direct-on-chip, waterless, two-phase liquid cooling system requiring less energy and halving the space of conventional cooling systems. This means smaller data centres that are much more energy efficient. ZutaCore is a member of Open19, part of the Linux foundation’s project dedicated to open source and open standard data centre innovation. Through Open19, the data centre industry can work together to make structural progress on heat capture and cooling.
Another member of Open19 is the data centre provider Equinix. Equinix is spending a lot of time thinking about how to recover heat or “dead electrons”. It is looking at ways of turning waste heat into electricity and trialing schemes in Finland to use waste heat to power residences near its data centres. It is also looking at alternative power sources and has a new data centre in Silicon Valley that uses hydrogen fuel cells for its primary power – totally off-grid.
Sitting on the hardware in the data centres is software. There are incredible efficiency gains to be made through improvements in software. GoCodeGreen analyses software products, be they a website, mobile application, full-stack app or end-to-end platform, and provides recommendations for efficiencies. Its assessment provides actionable recommendations at any development/product lifecycle stage. Early assessment in pre-build means design decisions and choices can be made to build energy-efficient software right from the start. If software is in the development stage, it enables the introduction of sustainability, and if it’s already live, retrospective assessment on existing platforms highlights remedial action.
An FI’s proposition, i.e., its products and services, are significant opportunities for Scope 3 decarbonisation. Companies such as CoGo, Ecolytiq and Duconomy are working with FIs to embed carbon information into digital banking platforms so customers can see their impact. They also provide content and education to help customers change their behaviour. According to research by CoGo, 75% of customers want to know more about the environmental impact of their spending. And 62% support their bank in helping them reduce their impact. So, this is a win-win for banks and their customers.
At the operation level, there are many gains to be had. Procurement’s role will be increasingly important as they become the gatekeepers of decarbonisation on the supplier side. Suppliers are under increasing pressure to explain and prove their sustainability credentials. Across the supplier value chain of an FI, this is creating a positive ripple effect, with suppliers of suppliers having to move beyond box-ticking into tangible action. Almost everything procurement touches will need to demonstrate what it is doing to decarbonise, including marketing.
Marketing is often overlooked but harbours a lot of emissions. Digital marketing, by its very nature, relies on energy through the infrastructure it requires.
Scope3 is a public benefit corporation founded to help companies understand emissions in their digital advertising and pricing carbon into campaign decisions. Its research estimates that approximately one gram of carbon is produced every time an ad impression is generated. With an average campaign for an FI involving millions of impressions, that is a lot of emissions.
The marketing specialist HH Global, which works with several FIs across the world, can estimate carbon emissions on campaigns at the proposal stage, allowing consideration of low-carbon alternatives before a marketing campaign has even left the drawing board. HH Global has developed several platforms and frameworks with credible parties, including the BSI (British Standards Institute).
When all the potential opportunities for an FI to reduce emissions are totted up, it equals a significant amount. Technology, processes and products are being co-opted successfully by the industry, which is hugely positive and demonstrates what collective ambition can do in ensuring the achievement of net-zero goals.
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.