Financial carbon footprint: calculating banks’ scope 3 emissions of assets and loans

Panel: 5. Business models, finance and investment

This is a peer-reviewed paper.

Authors:
Jens Teubler, Wuppertal Institute for Climate, Environment and Energy, Germany
Markus Kühlert, Wuppertal Institute for Climate, Environment and Energy, Germany

Abstract

Financial institutions play a crucial role in achieving the 2015 Paris Climate Agreement. They can manage capital flows for financing the required transformation towards a decarbonized industry. Currently established policy programs and regulations at European and national level increasingly address financial institutions to make their climate warming impact measurable and transparent. However, required science-based assessment methods have not been sufficiently developed so far.

This paper discusses methodological opportunities and challenges for measuring carbon footprints of financial institutions. Based on a scientific case study undertaken with the German GLS Bank, the authors introduce an innovative method for quantifying greenhouse gas emissions from a bank’s asset with a focus on loans. The authors apply an input/output database to calculate greenhouse gas (GHG) intensities and allocate them with bank’s loans and investments.

Moreover, the paper provides insights of calculating avoided GHG emissions initiated by a bank’s investment and loans. In conclusion, a high degree of consistent and standardized assessment methods and guidelines need to be developed and applied to promote comparability and transparency.

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