Some bold banks are starting to see the benefits of working together to control supply chain emissions. They are sharing ideas on how they can more accurately measure these Scope 3 emissions that their suppliers generate. And, what is more important, they are exploring ways to reduce them. The discussions involve several large retail banks and are being coordinated by Accenture.
If all goes well, the talks will produce recommendations before the end of this year that will help banks across the UK to reduce emissions from their supply chains. The recommendations could provide organizations such as the Carbon Disclosure Project (CDP)he Greenhouse Gas Protocol and the Net Zero Banking Alliance with valuable insights into how the banking industry in many countries might classify, baseline, and ultimately reduce such emissions.
“Cuts in supply chain emissions in the banking industry wold likely to trigger reductions in other sectors.”
Action to help banks address emissions from their suppliers is vital. As discussed in our Rising to the net zero challenge Banking report, Scope 3 emissions are by far the largest source of bank emissions – more than 95%. And a part of these are “upstream” emissions produced by banking suppliers and contractors. Banks are increasingly addressing “downstream” issues, generated by companies in their loan and investment portfolios. But they have tended to hold back on addressing supply chain emissions.
By intensifying efforts to curb greenhouse gas emissions from this particular source, banks could further their quest to become sustainable organizations. They would get closer to reducing their carbon footprint to net zero. Greater cooperation with suppliers and contractors could also allow banks to share cost savings and capitalize on new business opportunities.
Furthermore, cuts in supply chain emissions in the banking industry would likely trigger reductions in other sectors and support the global shift towards sustainability. Our research shows that Supply chains across all industries produce 60% of the world’s greenhouse gases.
Why have many banks been reluctant to address their supply chain emissions?
The first big challenge banks face when trying to reduce emissions from their suppliers is identifying the large number of companies within their supply chains. Then they are faced with the complex problem of measuring the emissions generated by those providers.
“If banks have inaccurate information about their supply chains, they are more exposed to
Without a true picture of all the companies operating in their supply chains, banks would not be able to correctly measure emissions from those sources, let alone begin to reduce them. They may struggle to allocate resources effectively and may miss opportunities to better align their procurement operations with the needs of their suppliers. Also, banks that have inaccurate information about their supply chains would be more exposed to risk.
we found that just over 30% of the emissions generated by the supply chains of financial services companies was attributable to their direct suppliers (tier 1). The rest were produced by subcontractors (tier 2), subcontractor suppliers (tier 3) and companies further down the supply chain (tier 4 – Nth). A staggering 30% of the emissions generated by financial services supply chains are produced by companies at Tier 4 or higher.
Banks and other financial services companies need to look down their supply chains when trying to come up with a solution to their emissions output.
Distribution of upstream emissions by level supplier
Click/tap on image to enlarge.
Often the “hot spots” that generate a large share of a bank’s supply chain emissions are businesses that lie well beyond the institution’s traditional business boundaries. Sometimes they are in a different country. To significantly reduce emissions from their supply chain, banks need to forge closer ties within a supplier network that goes well beyond their immediate providers of products and services. Without such relationships, they are likely to have a difficult time encouraging suppliers to reduce their emissions.
More than 60% of CEOs we surveyed with United Nations Global Compact report that difficulties in measuring environmental, sustainable and governance (ESG) data in their supply chains are an obstacle to advancing sustainability in their industry. While 55% of CEOs say their companies have started to measure Scope 3 emissions, only 16% say such monitoring is at an “advanced level”.
Recent discussions between UK banks about how best to curb supply chain emissions have highlighted potential improvements in the way those emissions are measured, reported and reduced. Topics addressed in the discussions include:
- Align a common set of categories for calculating supply chain emissions.
- Move to vendor-specific calculation methodologies.
- Simplify the collection and submission of emissions data from suppliers and contractors.
- Incorporate ESG requirements into banks’ sourcing and contracting activities.
- Encourage suppliers to improve their sustainability.
- Align support for sustainability, education and accreditation granted to suppliers.
The recommendations that will emerge from these discussions will equip banks to ultimately address and control supplier emissions.
You can learn more about interbank discussions on supply chain emissions by contacting my colleague, benjamin oswin. Our Rising to the net zero challenge Banking The report provides valuable information on how banks can accelerate their progress towards becoming sustainable organisations. You also can contact me. I really want to know about you.