Value chain

Reaching net zero in an FI’s value chain

It’s been a year since I wrote an article for Sibos that talked about the challenges facing the financial industry regarding climate change.

Achieving net zero goals takes center stage at many institutions

COP26 in November 2021 proved to be a pivotal moment. The loudest voices seemed to come from the financial sector, particularly with the launch of Mark Carney’s Glasgow Financial Alliance for Net Zero (GFANZ), a coalition of leading financial institutions committed to decarbonizing the economy.

Since then, the industry response has been incredible, with companies across all financial sectors pledging to achieve net-zero goals by 2030. In 12 months, it went from what seemed like a minority interest to take center stage in many institutions. C-suite leaders now have decarbonization KPIs as part of their goals.

Many financial institutions (FIs) are now searching their value chains for decarbonization opportunities, but are quickly discovering what a complex mission it is.

A useful starting point is the “scope” of the Greenhouse Gas Protocol.

Scope 1 covers direct emissions from owned or controlled sources, for example, on-site air conditioning or heating. Scope 1 also includes the cleverly called “fugitive emissions” from leaks or spills. Scope 2 covers indirect emissions from purchased electricity, heating or cooling (generated off-site).

Scope 3 includes all other indirect emissions in a company’s value chain and is where most of a company’s emissions are located, including purchased goods and services, travel, business, employee travel, customer use of company products and services, and investments.

But decarbonization is like the mythical many-headed hydra. Solving one problem creates others, and associations are created to help members deal with this complexity and advocate for a more holistic approach.

One such association is the newly formed Sustainable Trading Group (STG), which aims to set the standard for ESG best practices in the financial markets trading industry. The STG has identified the need to provide practical advice as a priority to member companies, to formulate best practices and develop principles to ensure a more sustainable future.

The financial industry has many opportunities for gains (both marginal and significant) in reducing carbon emissions by taking a holistic approach.

Suppose a company is committed to achieving the goal of net-zero. In this case, it must act at the scale of the organization rather than relying on a few token efforts, for example, biodegradable cards and compensation.

Imagine any modern financial enterprise organized around technology, proposals, operations, and marketing.

Starting with technology, a major consideration for FI will be its data centers that run applications and provide storage. Data centers use approximately 1-2% of the world’s electricity, which is equivalent to powering 32 million homes.

FIs are now pressuring data center companies and their suppliers to reduce emissions, and data center companies are responding – amazing innovations are happening.

For example, US-Israeli company ZutaCore has developed a two-phase, waterless, direct-on-chip liquid cooling system that requires less power and halves the space of conventional cooling systems. This means smaller data centers that are much more energy efficient. ZutaCore is a member of Open19, part of the Linux foundation project dedicated to open source data center innovation and open standards. With Open19, the data center industry can work together to make structural advances in heat capture and cooling.

Another member of Open19 is data center provider Equinix. Equinix spends a lot of time thinking about how to recover heat or “dead electrons”. It is studying ways to turn waste heat into electricity and is testing programs in Finland to use waste heat to power residences near its data centers. It is also researching alternative energy sources and has a new data center in Silicon Valley that uses hydrogen fuel cells for its main power – totally off-grid.

Sitting on top of hardware in data centers is software. Incredible efficiency gains can be achieved through software improvements. GoCodeGreen analyzes software products, whether it’s a website, mobile app, full app, or end-to-end platform, and provides recommendations for greater efficiency . Its assessment provides actionable recommendations at any stage of the product development/life cycle. Early assessment in pre-build means design decisions and choices can be made to build energy efficient software from the start. If the software is in the development phase, it helps to introduce sustainability, and if it is already live, a retrospective evaluation on existing platforms highlights the corrective measures.

An FI’s proposition, i.e. its products and services, are significant opportunities for Scope 3 decarbonization. Companies such as CoGo, Ecolytiq and Duconomy are working with FIs to integrate carbon information into digital banking platforms so customers can see their impact. They also provide content and education to help customers change their behavior. According to a study by CoGo, 75% of customers want to know more about the environmental impact of their spending. And 62% support their bank to help them reduce their impact. It is therefore a win-win for banks and their customers.

At the operational level, there are many gains to be made. The role of procurement will be increasingly important as it becomes the guardians of decarbonization on the supplier side. Suppliers are under increasing pressure to explain and prove their sustainability credentials. Throughout an FI’s supplier value chain, this creates a positive ripple effect, with suppliers to suppliers having to move beyond checkboxes to tangible actions. Almost everything related to procurement will need to demonstrate what it is doing to decarbonise, including marketing.

Marketing is often overlooked but holds a lot of programming. Digital marketing, by its very nature, relies on power through the infrastructure it needs.

Scope3 is a public benefit company founded to help companies understand emissions in their digital advertising and price carbon in campaign decisions. His research estimates that approximately one gram of carbon is produced each time an ad impression is generated. With an average campaign for an IF involving millions of impressions, that’s a lot of shows.

Marketer HH Global, who works with several FIs around the world, can estimate the carbon emissions of campaigns at the proposal stage, allowing low-carbon alternatives to be considered even before a campaign marketing has left the drawing board. HH Global has developed several platforms and frameworks with credible parties, including the BSI (British Standards Institute).

When all of the potential opportunities for an FI to reduce emissions are added together, this amounts to a significant amount. Technology, processes and products are being successfully co-opted by industry, which is hugely positive and demonstrates what collective ambition can do to ensure zero emissions goals are met.


About the Author

Dave Wallace is a user experience and marketing professional who has spent the past 25 years helping financial services companies design, launch and scale digital customer experiences.

He is a passionate customer advocate and champion and a successful entrepreneur.

Follow him on Twitter at @davejvwallace and connect with him on LinkedIn.