Managing Director of Enel X UK and Ireland Tony Whittle examines the importance of a comprehensive energy strategy among financial institutions to address emissions from their portfolios and operations.
Just ten years ago, corporate ESG strategies were rarely discussed at board-level. Today, they have taken centre stage as organisations navigate the energy transition. The financial services sector plays a pivotal role in tackling the climate emergency, both through investment activities and limiting direct emissions.
Many financial organisations report board-level oversight of climate-related issues. Over 250 financial institutions, managing total assets of over US$71 trillion, have assessed and disclosed the greenhouse gas (GHG) emissions of their loans and investments through the Partnership for Carbon Accounting Financials (PCAF) organisation. At COP26, institutions managing more than US$130 trillion in assets committed to reaching a state of net zero before 2050.
A 2021 report showed that fewer than half of financial institutions disclosing their emissions through the Carbon Disclosure Project (CDP) have taken action to align their portfolios with a well below 2°C world. According to CDP’s analysis, GHG emissions associated with investing, lending and underwriting activities are on average 700 times higher than their direct emissions. HM Treasury is keen to address these high emissions and, in April 2022, launched a Transition Plan Taskforce (TPT) to build a ‘gold standard’ for private sector climate transition plans which is informing and building on international disclosure standards.
There is no shortage of climate targets for businesses to work towards. Each business needs a high-quality, holistic energy plan to deliver on those targets. Without a clear strategy, businesses face short and long-term implications that differ between jurisdictions as regulatory requirements to report GHG emissions vary.
Along with GHG emissions resulting from loans and investments, financial institutions must also address the scope 1 and 2 emissions from their business operations.
Understanding energy use, and the business trends that affect it, is a rational point to start decarbonising the financial services sector. Accurately measuring and reporting emissions is an increasingly complex task, especially for businesses that operate globally.
The UK banking sector has seen a huge reduction in branches since the 1980s. So, the sector’s energy usage might have been predicted to fall, but changes in banking behaviour, such as the move to online banking and contactless payments, have driven investment in digital services and data centres. These consume a lot of energy. While the physical footprint of a financial services business might change, gathering and analysing energy billing data remains a foundation for cost-control, energy performance reports and forecasting, and, increasingly, emissions data. Digitalising energy monitoring enables organisations to identify opportunities to reduce energy consumption and reduce emissions.
Step one: know your energy use
Financial businesses can only play their central role in decarbonising our economy with access to high quality, consistent and comparable data.
Monitoring and streamlining energy consumption is a complex task, especially for financial organisations that deal with multiple utility suppliers. Utility bill management (UBM) systems that provide a detailed picture of utility expenses allow bill checking, comparisons across sites based on number of staff, opening hours and branch size, as well as identifying opportunities to reduce energy consumption and decrease emissions. UBM data can be used to inform strategies for renewable Power Purchase Agreements (PPAs) and alternative generation methods.
Step two: maximise energy productivity
Once an organisation has a clear picture of its energy use, identifying opportunities for efficiency gains becomes much easier. Having baselined emissions and introduced an integrated energy strategy, organisations can establish measures to reduce emissions and to record their progress. A sustainable roadmap should ideally address emissions across all scopes.
Executing a plan to address scope 1 emissions could include installing on-site generation and optimising or electrifying key processes. Making long-term commitments in terms of energy supply and infrastructure is a high-risk strategy when dealing with an evolving estate, as is the case with bank branch networks. Investing in microgeneration at a branch level is rarely an option with sites on shorter-term leases.
Addressing scope 2 emissions requires procuring energy from lower emission sources, including renewable energy through PPAs, as well as managing offtake agreements with energy suppliers. Actions such as assessing the current asset base, strategic sourcing/procurement, emissions tracking, and energy efficiency, are fundamental to reducing emissions across scopes 1 and 2.
Financial services businesses with branch networks that spread across large geographical areas can find themselves dealing with multiple grid operators when setting up a PPA. In this case, it’s worth considering a virtual PPA, which delivers the hedging benefits of a physical PPA but without the direct delivery of power.
Addressing scope 3 emissions hinges on tracking emissions from supply chain participants and communicating with them. CDP disclosures provide visibility into the supply chain, giving financial businesses insight into the state of their upstream and downstream partners. Financial organisations are in a unique position to affect scope 3 emissions through their investment strategies; reporting frameworks and initiatives such as PCAF, Science Based Targets for Financial Institutions (SBT-FIs) and the Task Force on Climate-related Financial Disclosure (TCFD) that provide frameworks and methodology guidance for measuring and reporting emissions that arise from loans and investments.
A comprehensive energy strategy presents financial services firms with the means to address a range of priorities – reducing carbon emissions, maintaining resilience, predicting future energy costs and enhancing their ESG performance.
To be effective, a strategy must include optimising energy use, planning and implementing a procurement strategy, and exploring ways to co-operate with energy companies and grid operators. By committing to PPAs with clean energy suppliers and participating in demand response (DR) programmes, financial services businesses can help maintain the stability of the grid and find valuable new sources of income; in short, going beyond adopting energy efficiency measures to become good grid citizens.