Finance sector’s portfolio emissions could be 700 times greater than its own, finds CDP

In first-of-its kind research CDP urges more financial institutions to measure and report their financed emissions

The reported financed emissions of global financial institutions are on average 700 times larger than their direct emissions, according to first-of-its kind research from CDP. 

The Time to Green Finance report analyses data from 332 financial institutions who filled in CDP’s first financial services climate change questionnaire last year. They represent 45% of the global financial sector and have a combined $109trn under management. 

However, just 25% or 84 of them disclosed their portfolio emissions, including AXA Group, BNP Paribas, BNY Mellon, HSBC Holdings, Legal and General and Nomura Holdings. 

For those 25%, CDP finds that portfolio emissions or Scope 3 are over 700 times larger than operational emissions on average. 

Within this group of 84 organisations, more than half disclosed emissions for less than 50% of their portfolio, with many disclosing less than 10%, suggesting the 700 times figure may be much higher. 

Overall, for the sample of 332 organisations, 49% do not conduct any analysis on how their portfolios impact climate change. 

However, CDP says 45% of banks surveyed are taking action to align lending portfolios with the low-carbon transition, while 48% of asset owners and 46% of asset managers are aligning investments.  Only 27% of insurers are aligning their underwriting portfolios, suggesting insurers’ transition plans are currently focused on their investments, says the report. 

The research also found that climate risk was high on the agenda, with 81% assessing it in financial decisions. Assessing water risk and deforestation risks is less common, with 63% and 52% of those surveyed doing so respectively. 

CDP intends to expand its questionnaires to include a full range of environmental factors. As a first step towards that goal, forests-related metrics were piloted with a limited number of banks last year. Similarly, CDP is now engaging with the financial sector to establish which water-related metrics should be included in disclosures of financial institutions. 

Emily Kreps, Global Director of Capital Markets at CDP, said: “ For financial institutions that do not currently measure their financed emissions the message from this flagship report is clear – they must start doing so, now, to understand their overall climate-impact and the risks they face.”