A road less travelled: A UK taskforce is helping banks journey to net zero

ESG
26/02/2024 Article

The Transition Plan Taskforce set up by the UK Treasury has released a net zero disclosure framework that guides banks on the difficult road to becoming carbon neutral. 

Half the leaders who joined the online event believe their bank’s transition plans were a mixture of commitment and marketing

Peter Plochan, Senior Community Advisor at Qorus

Banks across the world have pledged to cut their carbon emissions to net zero. But few have a clear plan to guide them on the path to becoming carbon neutral. Most are still trying to get to grips with the scale and complexity of the transition. 

Yet without a comprehensive transition plan, banks will likely struggle to reach their ambitious net zero targets. What’s more investors, regulators and ESG watchdogs won’t be able to get an accurate view of a bank’s progress towards jettisoning carbon.

However, there’s good news for banks that are labouring along the road to net zero. Work prompted by the UK Treasury looks set to give them the direction and impetus they need to get on track. The Transition Plan Taskforce (TPT), launched by the UK Treasury in 2022, has released a net zero disclosure framework for banks and other organisations. It sets out how companies should map and report their progress as they shed carbon from their businesses. 

TPT representative Nathan Chan reports that the taskforce has aligned its work with the goals of organizations such as the International Sustainability Standards Board (ISSB) and the Glasgow Financial Alliance for Net Zero (GFANZ) and it has attracted interest from parties in the US, Australia, New Zealand and Singapore. TPT believes its framework could become the “gold standard” for private sector climate transition plans. 

Chan revealed details of the TPT disclosure framework at an online event organized by the Qorus ESG Community and TNP Consultants. The event examined how banks are progressing in their responses to the net zero goals announced at last year’s COP28 climate change conference in the United Arab Emirates. 

During the event, leaders from the banking industry, expressed support for their organizations’ transition initiatives but also shared doubts about whether they will meet their net zero goals. Nearly 20% of them reported that their banks were committed to achieving net zero and had a robust strategy to ensure they reached their target. A further 38% acknowledged that their companies were committed to their net zero transition but they doubted whether they could meet their goal. Half the leaders who joined the online event believe their bank’s transition plans were a mixture of commitment and marketing. 

According to Chan, the TPT disclosure framework promotes a “strategic and rounded approach” that steers firms beyond just “paper decarbonisation”, the disinvestment of high carbon producers from their portfolios, and instead aligns their transition with the broader net zero economy.

The framework addresses three aspects of a company’s transition:

  • Ambition - urgency to act.
  • Action - translating strategic ambition into concrete steps.
  • Accountability - ensuring good governance and reporting.

To best tackle these different aspects of the transition journey, the framework proposes that firms home in on five areas that are key to transition planning (See illustration below).

Chan adds that the TPT has published a transition guide for banks to help them implement the disclosure framework.

While the work performed by TPT is welcome news for banks, the task of transitioning to net zero continues to be challenging for most institutions.

We don’t have time not to have a transition plan.

Matthew Bullivant, director of sustainability and ESG strategy at OakNorth

Matthew Bullivant, director of sustainability and ESG strategy at UK lender OakNorth, points out that banks face complex demands within their organisations and in their relationships with external parties. OakNorth, which provides banking services to SMEs, aims to get its operations and financing to net zero by 2035.

“We don’t have time not to have a transition plan,” says Bullivant. “A transition plan forces you to think about what you’re doing now. It’s not some target out in the distance. You need to set milestones,” he says.

Bullivant points out that banks that are implementing an ESG strategy must manage multiple moving parts within their organisations. Skills, incentives, risk management, data sources, KPIs, for example, all must be aligned. 

“You also need to think about your products and services and how they complement your ESG journey. And that's before you consider the effect of ESG on your standard business model, your business strategy and your operations,” he adds.

Banks must also contend with external factors, especially the attitude to ESG among their customers. Clients can account for as much as 95% of a lender’s carbon footprint. Customer education and support are critical. 

Beyond the control of banks are the influence of State utilities and Government policies on their companies’ ESG strategies. Carbon emissions related to electricity consumption, for example, are outside of the control of banks and their customers. Yet they can have a big effect on the carbon footprint of both groups.

“There's a balancing act between what levers we can pull and those that are at a national and policy level,” says Bullivant. 

Adlen Bouchenafa, director of sustainability at TNP Consultants, highlighted six major challenges banks encounter within their organizations when transitioning to net zero. They are: 

  • Climate risk materiality: Banks need to establish a clear understanding of the specific risks likely to impact their businesses while they move to net zero.

  • Executive-management disconnect: C-suite execs must ensure that other key employees in the bank, such as customer-facing middle managers, understand and support their organisation’s sustainability vision.

  • Poor strategy integration: Banks should avoid trying to tack net zero requirements onto their traditional business models but instead integrate sustainability initiatives into their corporate strategies.

  • Regulatory compliance: Banks must accommodate increasing regulatory demands while also building long-term value for their customers and shareholders.

  • Risk management: It’s essential that banks make structural changes to their businesses to manage the risk associated with their transition to net zero.

  • Lack of intermediate targets: Banks need to set firm intermediate targets to ensure they advance to net zero by 2050.

“These challenges are complex and interrelated. They require banks to adopt a strategic approach to their migration to net zero that includes transitional planning,” says Bouchenafa.

A lack of accurate, comprehensive and consistent data lies at the core of many of these challenges. 

Advanced analytics will allow us to collect, monitor, store, interpret and analyse data.

Vera Economou, ESG Group Competence Center lead at Raiffeisen Bank International (RBI)

Bouchenafa points out that banks that are looking to improve their capabilities need to first define why they are sourcing specific data and be clear about its application. This initial step enables banks to identify use cases, determine what data format is needed and select how the data should be modelled and reported.  Once they have completed this step, banks should then establish the data architecture and tools they need to facilitate their transition to net zero.

Bouchenafa adds that banks can compensate for shortages of data by sourcing from external providers and by working with partners to determine appropriate proxies.

Vera Economou, ESG Group Competence Center lead at Raiffeisen Bank International (RBI) in Austria, points out that increasingly intelligent data analytics systems offer banks the ability to considerably improve their sourcing and application of data. RBI plans to make big investments in such technologies.

“Advanced analytics will allow us to collect, monitor, store, interpret and analyse data. The next step could be to use such data analytics to make suggestions to customers who are searching for best practices or to advise them on how to improve their climate change indicators,” says Economou.

Closer collaboration with customers promises to be one of the major benefits for banks that successfully implement a net zero transition plan. 

“We have an opportunity to provide financial solutions to those companies that want to transition. It’s an opportunity to build a different relationship with customers and to be partners in their transition,” says Economou. 

The need for an alignment between all the actors is perhaps the biggest challenge we face.

Clotilde Bouchet, chair of CRSF

But before they can establish such relationships, banks need to further educate their customers about climate change and encourage them to decarbonise their businesses, she says.

Clotilde Bouchet, chair of French financial services thinktank Cercle de la Régulation et de la Supervision Financière (CRSF), adds that more education about climate change and ESG regulations still needs to take place within banks. Not only is there a gap in climate knowledge between C-suite executives and middle managers but also staff in multinationals, for example, often lack sufficient information to properly contend with different national standards and regulations. 

“The need for an alignment between all the actors is perhaps the biggest challenge we face,” says Bouchet.

While many banks are making progress on their path to net zero and are endeavouring to meet the requirements set down by regulators, they still face a long and challenging journey before they are likely to reach their goal.

The Qorus ESG Community and TPN Consultants are planning several online events this year to help leaders in the financial services industry respond to climate change and the demand for more sustainable business practices. Upcoming events include:


For further information contact Elena Davydova: elena@qorusglobal.com.

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