ESG IN FINANCIAL SECTOR

The financial sector is arguable one of the most important influencers in the movement aimed to decarbonise and reach net-zero goals. Financial companies can facilitate the growth of more ESG competitive companies and start-ups through their products and services. There's two schools of thought to address; 1) the effect of financing ESG competitive businesses, projects and start-ups, 2) the risks of investing in emission intensive industries that are essential to the global economy. In what ways does the industry shape and create positive changes: transparency for stakeholders, managing climate risk, risks associated with policies, and funding new projects or businesses that aim to transition or aid in transitioning to net-zero.

The financial sector is sea of vast products and reach. Let's first look at the players that need to report on their emission activities and emissions portfolio and the transition plan. It's essential to note that the SBTi identifies any entity that earns revenues of more than 5% generated from commercial financial activities shall report on their carbon emissions. These entities include public and private financial companies such as banks, asset managers, private equity firms, asset management companies, insurance and re-insurance companies, public pension funds, and sovereign wealth funds, amongst others.

Historically analysing - from much of the world's history - we evolve based on needs, environmental influences and curiosity. In this way, as we shift our thinking from the perspective of taking from the environment and abusing it - to working for the environment and with it - we can drive meaningful change towards to a holistic thinking approach - but to drive such change the world of finance needs to function as such to promote change. 

Understanding different metrics:

Absolute emissions: Total GHG emissions of an asset class or a portfolio.

Economic emissions intensity: used to compare emission intensity of different portfolios.

Physical emissions intensity: compares emission intensity of a common output within companies in the same sector.

Weighted Average Carbon Intensity: evaluates a portfolios exposure to carbon-intensive companies.

Source: The Global GHG Accounting and Reporting Standard for the Financial Industry page 23.