Bank Sustainability Jargon Buster

Michelle Horsfield

25 years: Sustainable Finance

Explore how banks can align profit with purpose through sustainable finance. This video breaks down key concepts like net zero, carbon neutrality, and science-based targets, showing how banks can manage climate risks and avoid greenwashing while supporting real environmental impact.

Green Economy and Central Banks

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Bank Sustainability Jargon Buster

12 mins 3 secs

Key learning objectives:

Understand the difference between net zero and carbon neutrality
Outline how science-based targets guide banks
Understand key sustainability concepts for banks

Overview:

Sustainable banking integrates financial growth with environmental and social responsibility. In line with the Paris Agreement, banks are tasked with minimising climate impacts by aligning investments and lending activities with emissions reduction goals. Managing climate-related risks, both physical and transitional, requires robust frameworks like climate stress testing. Banks adopt net zero and carbon neutrality strategies, focusing on Scope 1, 2, and 3 emissions. Tools such as science-based targets and labelled bonds support structured emission reduction and transparency in sustainability initiatives. Navigating these challenges also involves vigilance against greenwashing, ensuring authentic and impactful sustainable practices across the banking sector.

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Summary

What is sustainable banking?

Sustainable banking aims to balance financial success with minimizing harm to the planet and society. It involves considering the environmental and social impact of lending and investment decisions.

What is the Paris Agreement?

The Paris Agreement is a global treaty that commits countries to limit global warming to well below 2°C, ideally closer to 1.5°C. For banks, it means aligning financial activities with these climate goals.

What are physical and transition climate risks?

Physical risks are financial risks due to climate impacts like extreme weather, while transition risks are financial risks from the shift to a low-carbon economy, such as new regulations on carbon emissions.

What is climate risk management?

Climate risk management involves identifying and managing the financial risks that arise from climate change. This includes using tools like stress testing and scenario analysis to understand potential impacts on operations.

What is net zero?

Net zero refers to balancing the emissions produced with emissions removed from the atmosphere. In banking, it involves reducing emissions from operations and financing activities to achieve no net increase in greenhouse gases.

What is a carbon footprint?

A carbon footprint measures the total greenhouse gases a person, company, or bank is responsible for, typically divided into Scope 1, 2, and 3 emissions, from direct emissions to those from financed activities.

What is carbon neutrality?

Carbon neutrality is achieving a balance between emitted greenhouse gases and an equivalent amount removed or offset, often through projects like reforestation or renewable energy investments.

What are science-based targets?

Science-based targets provide a clear, scientific path for reducing emissions to limit global warming to 1.5°C. They outline specific reductions needed to meet climate goals, helping banks align with the Paris Agreement.

What are labelled bonds?

Labelled bonds are debt instruments designed to fund projects with environmental or social benefits. Types include green bonds, social bonds, sustainability bonds, and sustainability-linked bonds.

What is greenwashing?

Greenwashing is when companies make misleading claims about their environmental practices. It often involves exaggerating or falsely advertising eco-friendly actions, detracting from genuine sustainability efforts.

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Michelle Horsfield

Michelle Horsfield, an environmental scientist with a climate change specialisation, transitioned into the financial sector four years ago to apply her knowledge to the largest reallocation of capital in history, as the economy moves towards a lower carbon future.

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