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 per cent by 2030.
The financial sector’s role in the effort to reach net-zero carbon cannot be overstated.
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For a 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. More than 2,000 global institutions, in 78 countries, declared support for the TCFD recommendations. In Canada, 89 institutions support the recommendations, of which 57 are financial institutions. The City of Vancouver is the only city in Canada that officially declared support for the TCFD recommendations.
We are beginning to see the financial sector wake up.
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 set up a climate-change centre to create a more structured approach to strategic planning. In the U.S., the Federal Reserve Bank of New York formed a supervision climate committee to further build the Federal Reserve’s capacity to understand the implications of climate change on the financial sector. Recently, John Kerry, U.S. special presidential envoy for climate, called on Wall Street to commit to climate-friendly finance policies. Last week, New Zealand became the first country to table legislation that requires the financial sector to report climate-related risks of their business.
In January, Canada’s Office of the Superintendent of Financial Institutions 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.
As Vancouver strives to become the greenest city in the world, the city needs to make sure its financial sector is in sync with the city’s sustainability goals and sends the appropriate signals to the market. One obvious example is to leverage the city’s planning and building policies, and approval process, to align developers and their financiers with the city’s climate goals.
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 asks 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 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.
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Luckily, carbon accounting standards have been around for 20 years. They were developed by Greenhouse Gas Protocol and World Business Council for Sustainable Development. However, carbon accounting brings with it a set of challenges when trying to collect, track, analyze and validate a company’s or product’s carbon footprint. The use of a digital dedicated tool can save time and money.
We don’t have the luxury of time, and we need to use this opportunity to build back better.
Vancouver approved a Climate Emergency Action Plan to reduce its carbon emissions by 50 per cent by 2030. To achieve this, the financial sector must be on board to drive the required shift in 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 effort to reduce greenhouse-gas emissions. Businesses that don’t measure, manage and disclose their carbon footprint will find themselves at a disadvantage in this new reality.
Ofer Ben-Dov is sustainability lead at Traction on Demand.
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