UK finance is a high carbon sector
The report shows that just a subsection of the UK Finance sector was responsible for financing 805 million tonnes of CO2 in 2019 of emissions through their lending and investment activities. This equates to 1.8 times the annual net emissions of the UK putting at risk the government’s plans to lead by example at COP26.
To put this in stark terms, if the UK banks and investors in this study were a country, they would be ranked 9th biggest emitter of CO2 in the world – ahead of Germany, indicating the scale of the issue.
WWF and Greenpeace are both urging the UK government to take further action this year to ensure that financial institutions take greater responsibility for their financing activities to truly understand the impact the sector is having on the planet.
The analysis carried out by leading climate solutions and project developer, South Pole, used market-leading carbon accounting methodology PCAF to calculate the financed emissions, the first time such an exercise has been completed using this method based on publicly disclosed data.
Tip of the iceberg
The report also highlights that this is just the tip of the iceberg, as the analysis used an indicative sample of the UK’s financial institutions (fifteen banks and ten asset managers) and excludes certain financing activities like underwriting and other significant asset classes. Therefore, the true extent of the carbon emissions funded by the UK’s finance sector is expected to be far greater.
Both organisations state that UK finance should be considered a ‘high carbon sector’, not dissimilar to oil and gas extraction, coal mining, aviation and transport. Despite this, UK financial institutions are not currently regulated in the same way as other high carbon sectors and, when it comes to cutting emissions, they’re not legally required to align their financing activities with the UK’s or global climate commitments.
The report reasons that voluntary pledges made by some financial institutions to reduce their carbon emissions are not enough to deliver the emissions reductions required to keep the planet on track to meet the promises of the Paris Agreement.
WWF and Greenpeace argue that without legislation that mandates UK banks and investors to develop transition plans that align with the 1.5°C temperature goal of the Paris Agreement, we will fail to both tackle globally financed emissions and avoid catastrophic climate change.
Banks, insurers, investors and other financial firms must be required to align their financed emissions as well as their own emissions with a sustainable future, in line with the government’s new 78% emission reduction target by 2030, the existing net zero target and the Paris Agreement.
The report comes off the back of several other reports that indicate a clear direction of travel for the finance sector. According to the Intergovernmental Panel on Climate Change (IPCC), in order to limit global temperature rises to 1.5°C, global emissions need to fall by 45% from 2010 levels by 2030. More recently the International Energy Agency (IEA) issued landmark research that has spelled out the need for no new financing of fossil fuels beyond 2021.
Voluntary commitments not enough
Tanya Steele, WWF-UK CEO said: “The UK financial sector could be the first in the world to be aligned with the Paris Agreement targets – and reap the rewards as global business shifts towards clean, green investments. But it’s clear voluntary pledges aren’t getting the job done. The UK Government must show the global leadership expected of the COP26 Presidency and commit to mandating all financial institutions to have net zero transition plans that cover their lending and investments in every corner of the globe.”
John Sauven, Greenpeace UK's Executive Director echoes this: “As the host of this year’s pivotal global climate summit, the government can no longer turn a blind eye. Rather than relying on self-regulation we need legislation that forces all banks and asset managers to align all financing activities with the goals of the Paris Agreement. That would be genuine climate leadership.”
Our Planet: Too Big To Fail
Finance sector engagement is something WWF has been working on for some time. In 2020 WWF and Silverback Films created an awareness film for the finance sector Our Planet: Too Big To Fail that shows the impact the finance sector has on the planet and the opportunity it has to help transition to a sustainable future. If you want to encourage momentum on the issues, you can find more information about it here.