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Measuring & labeling the carbon footprint of banking products
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Transcript of Measuring & labeling the carbon footprint of banking products
Confidentiel © 2008 Utopies
Sustainability & business strategy
Measuring & labeling the carbon footprint of banking productsNovember 2009
Contacts :
Stanislas Dupré, Executive Director Utopies
[email protected] ; +33 664 273 060
CO2
Sustainability & business strategy
Stan Dupré, executive director & partner
• Working for Utopies: since 2000
• Role in the project: inventor of the methodology to calculate the carbon footprint of financial portfolios.
Stan Dupré, executive director & partner
• Working for Utopies: since 2000
• Role in the project: inventor of the methodology to calculate the carbon footprint of financial portfolios.
Leading CSR Consultancy in France
• Created in 1993
• Staff: 20 (consultants, engineers, lawyers…)
• Clients: Caisse d’Epargne, CDC, MACIF, MAIF…Veolia, EDF, Bouygues, Suez, Sodexo…
Leading CSR Consultancy in France
• Created in 1993
• Staff: 20 (consultants, engineers, lawyers…)
• Clients: Caisse d’Epargne, CDC, MACIF, MAIF…Veolia, EDF, Bouygues, Suez, Sodexo…
Confidentiel © 2008 Utopies
Sustainability & business strategy
Carbon footprint of banking activitiesThe project: labeling savings products
Sustainability & business strategySustainability & business strategy
An increasing media and political pressure on banks
Before the project (june 2007)
• Climate change: latest studies from NGOs estimate that induced carbon emissions represent 1000 times direct emissions
• NGOs and media consider that banks’ marketing approach prevent the mainstreaming of SRI
• Some retailers commit to applying a carbon label on their products
• Most banks are strongly criticized for hiding the risks related to some savings and credit products
Since the public launch (mid 2008)
• Carbon labeling of consumer goods became mandatory in France and is supported by public authorities in Europe
• The financial crisis spotlighted the socio-economic impact of banks, the lack of traceability of savings products and the systemic risks related to irresponsible loans (subprime loans)
Sustainability & business strategySustainability & business strategy
How the project started?Caisse d’Epargne commits to labelling all its savings products
• Caisse d’Epargne is the 4th French retail bank with a net income of €10 Bn
Commitment in June 2007 to label all their savings products by mid 2008 and publish their scope 3 carbon footprint in 2009
Labelling scheme & methodology co-developed with a stakeholder panel
Self-assessments verified by the statutory auditors
No financial risk for you with this product, the annual interest rate is warranted.
A Socially Responsible Investment approach is applied but the impact on the asset management process is limited.
Example: Are your savings…
Safe for Society?
Your money is invested in French Government bonds and low carbon intensity industries: 220g of CO2 per € of savings
Sou
rce:
Ca i
sse
d 'E
parg
ne/
Uto
pies
Safe for You?
Safe for the Climate?
Short label on each product leaflet
Detailed fact sheet on each product on the website
Sustainability & business strategySustainability & business strategy
Evolution of the projectFrom best practice to industry standard
Project open to every bank and insurer
The companies and the panel formed the Association for Transparency and Labeling of financial products
The panel lobbies for mandatory requirements in France & Europe
2 insurers join the project. 5 other companies showed interest (Portugal, Brazil, Canada, France)
Scheme and methodology co-designed with a stakeholder panel
Open Source
Workshop with CSR Europe to explore next steps
Confidentiel © 2008 Utopies
Sustainability & business strategy
Carbon footprint of banking activitiesMethodology
?
Sustainability & business strategySustainability & business strategy
IntroductionBasic application of the carbon footprint to a bank
Scope 1: Energy consumed Scope 2: Electricitypurchased
Scope 3: Induced emissions
Heating
Owned vehicules
Employees business travel
Office construction
Supplies
Tons of eCO2 / year
Applied by many banks including: Deutsch Bank, Barclay’s, HSBC…
Principle: measuring all the carbon emissions linked with the company’s activities Methodological framework:
WBCSD/WRI GHG Protocol
Sustainability & business strategySustainability & business strategy
IntroductionDid you notice?
… the emissions induced by financial activities, that represent as much as 1,000 times direct emissions
Annual emissions of CO2
Something is missing…
States
Banks
Listed companies
Projects
SMEs
Consumption
Houses
Cars
Sustainability & business strategySustainability & business strategy
The methodologyCore principle #1: considering the use of the money saved on your bank account or fund
Ethique
Risque
Climate
Bank
Customer
CO2
CO2
Corporate bonds
Government bonds
CO2
CO2
Corporate shares
data provided by:All type of securities taken into account
Sustainability & business strategySustainability & business strategy
The methodologyCore principle #2: estimating the carbon footprint of all activities financed by an investor
Investor
The core principle is: proportional allocation of emissions (when one finances 10% of an activity or organization, it is allocated 10% of its annual CO2 emissions )
Supply chain emissions
Direct emissions
Products emissions
indirect emissions
All GHG protocol scopes are taken into account
This principle is derived from the GHG protocol’s equity share principle
10%
CO2
CO2
10%
Sustainability & business strategySustainability & business strategy
The methodologyCore principle #3: considering of types of securities and assets
We identify the asset behind each security so as to allocate a carbon emission factor per M€ of holdings
Securities Carbon emissions factors per type of asset
Stocks
Private equity
Corporate bonds
Gov.bonds
Loan book
HousingEnergy consumption
CashAverage consumption
SMEOperations
Listed companiesOperations
CarCar use
Commercial real estateEnergy consumption
States & citiesOperations, public expenditures & SOEs
ProjectOperations
CO2 /M€
M€ of holdings of Shareholder equity + Financial debt
Confidentiel © 2008 Utopies
Sustainability & business strategy
Carbon footprint of banking activitiesOverview of the results
Sustainability & business strategySustainability & business strategy
Kg
CO
2 in
du
ced
per
yea
r p
er €
10,0
00 o
f h
old
ing
80
% b
on
ds
; 2
0%
eq
uity
Util
itie
s, p
ha
rma
What did we learn?
1.Through their indirect carbon emissions banks can easily become the next main target of pressure groups and the policy makers
CO2
€10,000
=
CO2
CO2 CO2
Sustainability & business strategySustainability & business strategy
What did we learn?
2. Assessing the carbon footprint of banking activities guaranties the traceability of the activities financed by the bank, thus allowing to track potential toxics
Super FundTrust me A.M.
Sustainability & business strategySustainability & business strategy
Downloadswww.utopies.com/bank-label
Full
methodology
Report on the
carbon footprintFOE reports on
banks and insurers
Confidentiel © 2008 Utopies
Sustainability & business strategy
Back up slides for Q&A
Carbon footprint of banking activitiesAnnexes CO2
Sustainability & business strategySustainability & business strategy
Overview of the resultsComparing industries (application to stocks and corp. bonds)
Carbon intensity (CO2/turnover)
The carbon intensity of a portfolio is determined by…
2. The companies or industry sub-groups selected
1. The industry group allocation
data provided by:
This graph shows the gap between the best and the worst company by sector.
Sustainability & business strategySustainability & business strategy
Overview of the resultsComparing securities (application to portfolios)
1 to 100
data provided by:
Tons of CO2 induced per year per 1M€ of holding
Sustainability & business strategySustainability & business strategy
Overview of the resultsComparing products (application to a savings products)
To
ns
of
CO
2 in
du
ced
per
yea
r p
er 1
M€
of
ho
ldin
g
€10.000 invested = 1 vehicle on the road
data provided by:
80
% b
on
ds
; 2
0%
eq
uiti
es
Util
itie
s, p
ha
rma
Sustainability & business strategySustainability & business strategy
Overview of the resultsOptimizing a portfolio (application to equity fund management)
data provided by:Investors who wish to minimize their exposure to climate risk without undoing their portfolio allocation by industry will favor a policy of optimization. In practical terms, they will select the least carbon-intensive companies within the most carbon-intensive industries. Testing on an average share portfolio indicate that its carbon intensity can be reduced by at least 35%.
Sustainability & business strategySustainability & business strategy
Overview of the principlesHow do we calculate the carbon footprint of a bank?
1. Identifying economic activities financed by the bank Analysis of the bank’s balance sheet Analysis of the type of products sold (retail banking)
M€ of holdings per type of asset
2. Finding carbon intensity factors to each type of asset Annual emissions of the organization/activity Book value of the organization/activity
CO2 emissions per M€ invested in the organization/activity
3. Consolidating emissions M€ of each organization/activity financed by the bank
CO2 emissions associated to the bank balance sheet
CO2
Sustainability & business strategySustainability & business strategy
How can you use this?
As a bank: Understand where you money goes Choose climate-friendly products Favor Best-in-class or cleantech sectors
As asset managers Identify carbon intensive activities in
your portfolio Use the carbon intensity as a basis for
carbon risk exposure Prevent reputation risks Design climate-friendly products!
-35% without breaking the balance between industries
Divided by >100 by investing in cleantech
Bonds and loan-backed securities are not intensive
Sustainability & business strategySustainability & business strategy
How can you get involved?
Quick wins /Low cost
Ground breaking /Investment
CO2
Calculate the carbon footprint of your savings products (internal use)
CO2
Publish your full carbon footprint (CSR report)
Label your savings products(POS material)
Label your other products(POS material)
Confidentiel © 2008 Utopies
Sustainability & business strategy
Sources for carbon & financial data
Carbon footprint of banking activitiesAnnexes CO2
Sustainability & business strategySustainability & business strategy
We can identify the securities in the portfolio (own portfolio, major products sold)
data base provides the carbon intensity factor for 1.800 MSCI World companies (applicable to stocks & corporate bonds)
database provides the carbon intensity factor for 40 States (governmental bonds)
The bank needs to provide the ISIN codes and the value of holdings
We find “new” clusters or securities in the balance sheet
&estimate the emission intensity factor of the activity based on existing raw data or ad hoc research*. It can be applied to: investments in non MSCI stocks, private equity portfolio, industry-oriented portfolio, etc.
The bank provides a description of the economic activity
Sources for carbon intensity factorsOverview of the approaches
3 approaches will be applied depending on the information available and the weight of the portfolios concerned.
We only know the profile of the portfolio (third party funds sold, funds of funds, etc.)
applies average emission intensity factors per cluster: • Equity portfolio with balanced allocation by industry• Governmental bonds• RMBS & home loans• Real estate portfolio• SMEs
The bank needs to provide the portfolio breakdown by cluster
Means: desk research
*The number of companies is limited and will be defined to fit the budget
Sustainability & business strategySustainability & business strategy
Sources for carbon intensity factorsMain source for carbon intensity factors per industry
The main source used is the Carnegie Mellon Institute’s EIOLCA database. The Economic Input-Output Life Cycle Assessment (EIO-LCA) method estimates the GHG emissions resulting from activities in the US economy. The method uses information about industry transactions - purchases of materials by one industry from other industries, and the information about direct environmental emissions of industries, to estimate the total emissions throughout the supply chain. The model includes 500 industry sectors. When you select an industry (ex.: Cement manufacturing) the model shows the direct and indirect emissions (per type of supplier) for a million dollars of economic activity.
CO2
Sustainability & business strategySustainability & business strategy
Sources for carbon & financial dataOther sources of raw data
Other LCA databases and industry specific studies to allocate carbon emissions factors to products’ use phase (energy consumption)
Industry specific statistics and corporate annual reports to adjust the carbon emission factor to the company’s specificities for carbone intensive industries (fleet for an airline, sales by type of vehicule for car manufacturer, technologies used for a cement company, etc.)
Financial databases and corporate annual reports to breakdown the company’s activity into industry groups, and determine the value of Shareholder equity + Financial debt
CO2
National and international statistics to determine the breakdown of public expenditures, SMEs activities or consumption by industry group and/or product
CO2
30% recycling
40% incineration
30% waste collection
Confidentiel © 2008 Utopies
Sustainability & business strategy
Organizations involved
Carbon footprint of banking activitiesAnnexes
Sustainability & business strategySustainability & business strategy
ProposalPartners & service providers
• Project management• Consolidation of the balance sheet• Production of deliverables • Calculation of new emissions intensity factors
• Access to the MSCI World database (1,800 Cies)• Ad hoc research on listed companies*
Association for Transparency and Labeling of Financial Products
• R&D on the methodology
Contact: Stan Dupre, Executive Director
Contact: Philippe Spicher, Executive Director
Contact: Marie Christine Korniloff, President
All partners are co-contractors. Project management is performed by Utopies.
*Limited number of companies
Utopies
Sustainability & business strategySustainability & business strategy
Created in 1993 by Elisabeth Laville Member of Nature & Découvertes BoD Business woman 2008 Veuve Clicquot Award
Activities Strategic planning & services Information & research
Company 18 employees in Paris Turnover: 2,6 M€ Capital held by the founder and managers
Skills and academic background Business School + Big 5 Engineers & biologists Lawyer specialized in Environmental issues, Former Greenpeace activist
Partners Communication: Ogilvy Group Consultancies: Rever (Brazill), Sair Da Casca
(Portugal), Centre Info (Switzerland), SustainAbility (UK) Research: Graines de Changement
Utopies Sustainability think tank & consultancy
"Utopies, the pionnering consultancy for sustainability strategies" Enjeux-Les Echos, oct. 2001
”Within 15 years, a revolution took place in the field of social and environmental responsibility of companies and organizations like Utopies largely contributed in raising their awareness on these issues."
François Lemarchand, CEO-Founder of Nature & Découvertes
www.
Constructiondurable.com
.com
.com
Sustainability & business strategySustainability & business strategy
Sustainable construction
Missions :- Dedicated private-sector initiative since 2004- Sectoral CSR strategies - Green building consulting (construction & operation)- Carbon footprintTM
Sustainable construction
Missions :- Dedicated private-sector initiative since 2004- Sectoral CSR strategies - Green building consulting (construction & operation)- Carbon footprintTM
Strategy
Missions:- Benchmarking, CSR issue analysis- Commitments charters & CSR action plans- Stakeholder consultation & panels
Strategy
Missions:- Benchmarking, CSR issue analysis- Commitments charters & CSR action plans- Stakeholder consultation & panels
Responsible innovation
Missions:- Product portfolio SD analysis - Responsible procurement- Eco conception- Responsible marketing
Responsible innovation
Missions:- Product portfolio SD analysis - Responsible procurement- Eco conception- Responsible marketing
Transparency & labelling
Missions:- CSR reporting - Ethical labelling of products
Transparency & labelling
Missions:- CSR reporting - Ethical labelling of products
Our servicesAdvisory services on SD and Corporate Responsibility
Sustainability & business strategy
Our clients
Pionneers Large caps Public agencies
Association for Transparency and Labeling of Financial Products
Sustainability & business strategySustainability & business strategy
The associationAim: gather users and stakeholders
• Members :
• Users (open to all banks and insurers)
• Stakeholders (4 organizations in 2009)
• Objectives• Fine tune the methodology for savings products
• Develop the methodology for other products
• Enforce the label rules of use
• Promote the initiative, recruit new users
• Means• €100k annual budget for research
• Monthly meeting to validate the new methodological principles
• Speeches in conferences and workshops
• Lobbying at French and EU levels
• Governance• Voting rights: 50% users, 50% stakeholders
• Members financial contribution:• Users: $30k
• Observers (industry associations, cies): €10k
• Stakeholders: free
Users
Stakeholders panel
Research contractor (2009)
Centre Info
Sustainability & business strategySustainability & business strategy
The firm
The Firm
Centre Info Ltd. is an independent company based in Switzerland that employs twelve people, including six senior analysts. Centre Info benefits from more than 15 years of experience in the ESG notation. Centre Info, together with INrate AG in Zurich, provides data and solutions suited to investors who want to consider ESG issues, either on the grounds of socially responsible investment or with the aim of minimising extra-financial risks in traditional investment. Centre Info also conducts specific research projects related to ESG issues and provides advisory services for the conception of SRI products or for defining investment strategies in line with SRI concepts.
DatabaseenvIMPACT® measures the exposure of companies to carbon risks. Companies facing high carbon risks are those whose business models are based on high carbon intensity activities. The carbon intensity of activities is analysed through the whole value chain of products and services. Currently, envIMPACT is used for the sustainable management of assets in excess of EUR 1.3 billion
Sustainability & business strategySustainability & business strategy
Downloadswww.utopies.com/bank-label
Full
methodology
Report on the
carbon footprintFOE reports on
banks and insurers