COP26 was always expected to be a turning point for organisations to make binding commitments to sustainability. Banks, in particular, have often been accused of paying lip service to the green agenda. Many executives have viewed it as more of a trend than a business imperative.
At COP26, Chancellor Rishi Sunak announced that all UK-listed companies will be legally required to produce annual plans for becoming green or face financial penalties. Firms must regularly present transition plans showing how they will help the UK reach net zero emissions or risk fines and delisting from stock exchanges.
However, banks shouldn’t view climate change as just another regulatory obligation. Addressing it should be at the forefront of business strategies for everyone. Initiatives to combat climate change enhance a company’s reputation among customers, employees, and investors alike. For banks, it also opens up new business opportunities, such as green mortgages.
With the government mandate from COP26, many boardrooms are now grappling with how to demonstrate their green credentials. So, where do banks start? How can they develop a programme that addresses the climate change challenge?
Here are our top four tips for building a green centre of excellence:
- Risk management and stress testing – Banks need to update their risk frameworks to prepare for the Bank of England’s 2021 biennial exploratory scenario. This scenario tests the resilience of business models in banks, insurers, and other financial institutions against climate-related risks and the level of transformation required for them to remain viable.
- Assessing business opportunities – Banks should also explore revenue-generating opportunities related to climate change to ensure this isn’t merely a business cost (as regulation is often viewed). This could involve developing green products to help customers live more sustainably.
- Measuring the organisation’s carbon footprint – Start by conducting an assessment of your business’s carbon footprint and establish clear, measurable strategies to address it. This should be a cross-organisational effort, reviewing everything from business travel and energy consumption to procurement processes and where recycling and reuse can be applied. This will be a key part of the government’s new requirements.
- Tracking and reporting – Build a baseline for financed emissions, set Paris-aligned targets to reduce them, and embed carbon reporting into your business-as-usual finance processes. This will be a priority for companies adhering to new government mandates.
The reality is, UK organisations have not done enough on their own to achieve net zero. The fact that it’s now legally binding is a crucial step in driving sustainability efforts forward. The question for banks and other financial institutions is how they can mobilise their efforts efficiently and swiftly.
To learn more about the P2 House of Green, our model for building climate change programmes within organisations, please get in touch today by emailing.
