Climate change initiatives increasingly important for banks

July 2021 – The Hamburg Commercial Bank (HCOB) has officially joined the 'Partnership for Carbon Accounting Financials' (PCAF), a globally active initiative for the standardized measurement and disclosure of greenhouse gas emissions in the financial sector.

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It just became obvious on the West coast of Canada what adjustments people around the world are having to make and what the Intergovernmental Panel on Climate Change (IPCC) at the United Nations is insistently warning about. In their most recent draft report, researchers are outlining that global warming by two degrees will expose a further 420 million people to the risk of heat waves. In addition to this, there are the consequences of extreme weather events such as droughts and floods.

This shows that climate change has tangible consequences which have an impact on society and the economy. This is something that the financial sector has long recognized. In a current survey of member banks of the Federal Association of German Banks, 89 percent responding saying that they are expecting climate change to also have an impact on the financial sector within the next ten years. Their conclusion: Greater climate protection is only possible with the help of banks.

But how can the financial sector act to mitigate the risks associated with the climate crisis? Increased financing of sustainable investments and the offer of sustainable investment products is a very good place to start. But what impact do these measures actually have? How can banks adapt to future levies for greenhouse gas emissions and decarbonization in their risk management and investment decisions?

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To answer these questions transparently, the Hamburg Commercial Bank has joined the Partnership for Carbon Accounting Financials (PCAF). The globally active initiative is developing standards to measure and disclose climate-relevant emissions for the financial sector. This ensures that companies participating in PCAF are taking the first step to evaluate climate-related risks, define goals in line with the Paris Climate Agreement and develop effective strategies for decarbonization.

“By joining the PCAF initiative, we are emphasizing the importance that the subject of sustainability plays in our organization. The methodology enables financial institutions around the world to measure the emissions associated with their business activity and to disclose it,” says Daniel Roth, Head of Strategy & Transformation at the Hamburg Commercial Bank. “The goal is to have a consistent and comparable database to enable monitoring of progress in reducing greenhouse gas emissions.”

While the method of determining the emissions of individual companies or projects is largely standardized, what is known as 'Financed Emissions', that is, the emissions at a portfolio level, have so far been identified using various approaches which deliver results that are hard to compare. With participants in the financial sector market now using a consistent and harmonized process of the PCAF approach, the level of comparability will be greater. “We will use the resulting transparency to better improve our own sustainability strategy and support our customers with the reduction of greenhouse gas emissions,” says Daniel Roth

The PCAF standard has already started to be implemented around the globe. With some 140 banks and investors around the world, PCAF members represent managed assets of more than 43 billion US dollars. In Germany, the Hamburg Commercial Bank is one of the pioneers. It plans to disclose the emissions identified using the PCAF methodology within three years.