KEY TAKEAWAYS
- Banks and financial institutions are increasingly committed to
reducing the emissions they finance – with the auto industry among
the world's biggest contributors to greenhouse gas emissions.
- This presents a problem for banks' disclosure processes and
target setting: Estimating financed emissions from vehicles is a
broad and complex process, and automakers' own disclosures use a
patchwork of varying methodologies.
- With data from S&P Global Mobility, banks are equipped to
understand and trace the Scope 3 emissions from their vehicle
portfolios, evaluate future emissions projections, and establish
ambitious net-zero goals.
Banks and other financial institutions are increasingly
evaluating and disclosing the greenhouse gas emissions emitted by
the businesses or assets they finance and underwrite, under their
Scope 3 emissions category. Investments and loans in the highly
carbon-intensive automotive industry and supply chain are a key
part of their net-zero analyses.
Decarbonization commitments begin with banks and financial
institutions making transparent climate disclosures on their
current emissions exposures, setting targets in line with the Paris
Agreement and other international standards, and evaluating
progress against those goals.
This presents a problem: How to account for automotive
emissions, encompassing both full-lifecycle vehicle emissions and
the emissions of the supply chain?
Many banks are homing in on their vehicle portfolios, aiming to
evaluate and manage emissions from both the gasoline/electricity
carbon footprint (Well to Tank) and combustion (Tank to Wheel)
processes, as well as portfolio-level analysis with net-zero goal
setting.
The goal is to identify the key drivers of emissions, forecast
future emissions pathways, and set and work toward ambitious
emissions targets for 2030 and 2050.
However, this journey toward transparency is not without
challenges. Banks are finding that methodologies for estimating
Scope 3 emissions vary widely across the industry, and the
necessary data is often difficult to access and lacks consistency.
In contrast with most non-financial corporates, banks typically
have low Scope 1 (direct operations) and Scope 2 (purchased energy)
emissions; accurate Scope 3 emission analysis is critical to banks'
net-zero goals.
Properly calculating vehicle emissions requires three key steps:
estimating Well-to-Wheel (vehicle lifetime) emissions, projecting
manufacturer-level emissions projections, and conducting
portfolio-level analysis.
Step 1: Estimating Well-to-Wheel (Vehicle
Lifetime) Emissions: Well-to-Wheel emissions are typically broken
out into Well-to-Tank (fuel extraction, processing, and
transportation) emissions and Tank-to-Wheel (combustion) emissions.
Calculating Well-to-Tank emissions includes the upstream CO2
production for gasoline (including extraction, refinement, and
shipping) and electric (including mining extraction, charging needs
and grid emissions) vehicles. Next, calculating Tank-to-Wheel
emissions requires projecting vehicle lifetime mileage and vehicle
CO2 production per mile for each vehicle type in the bank's
portfolio, from ICE to hybrids to battery electric vehicles. This
information should be calculated on vehicle Tank-to-wheel emissions
by make, model, and powertrain combinations, accounting for
geography and usage.
Step 2: Calculate Manufacturer-Level Emissions
Projections. By using the vehicle-powertrain level well-to-wheel
emissions, the bank should project create manufacturer-level
average emissions by year of production for each major vehicle
manufacturer. These projections should extend to 2050 to align with
various international net-zero agreements.
Step 3: Calculate Financed Emissions and Set
Net-Zero Goals. Armed with forecasted emissions for each major
vehicle manufacturer, banks and financial institutions can estimate
the vehicle emissions financed by their automotive portfolio, and
set clear, informed 2030 and 2050 emissions targets and identify
paths to net zero.
S&P Global Mobility's data and consulting solutions can
assist banks with such sustainable financing analyses.
As a result, banks are now better equipped to understand and
trace the Scope 3 emissions from their vehicle portfolios, evaluate
future emissions projections, and establish ambitious net-zero
goals. They are also prepared to develop plans to work with their
portfolio companies to meet these goals – marking a significant
step forward in the financial sector's journey towards greater
sustainability.
LEARN MORE ABOUT SUSTAINABLE MOBILITY
CLIMATE RISK
AND NET ZERO SOLUTIONS
PODCAST: HOW FINANCIAL INSTITUTIONS ARE TACKLING SCOPE 3 FINANCED
EMISSIONS
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