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Home > Blog > A huge year for climate - and the financial services sector holds the key 

A huge year for climate - and the financial services sector holds the key 

  • Tony Rooke, Global Technical Director

February 21 2020

There is no longer any question that climate change will dominate the economies of the future. Recent announcements from the World Economic Forum, the outgoing Governor of the Bank of England, BlackRock and Microsoft show that the conversation around climate risk and opportunity has moved squarely into the world’s most influential boardrooms.

CDP’s research backs this up. In 2019, 215 of the world's largest companies told us they saw nearly $1 trillion at risk from climate impacts, alongside a staggering $2 trillion in opportunities from things like low carbon technologies and sustainable business models. The business case for action could not be clearer, and consensus is building. Discussions now focus on how best to meet the challenges and harness the opportunities.

It will require good tools. As the gold standard in environmental reporting, CDP helps companies get data to respond to this growing market demand, and works to identify and address blindspots in the system.

Currently, the financial services sector is a key missing link, and the big elephant in the room. Nearly 300 major financial institutions already disclose through CDP -- including big names like Citibank, HSBC and Morgan Stanley. Until now, CDP disclosures from financial institutions have focused mostly on direct impacts of their operations. Less than one-fifth have reported anything at all about the emissions financed through loans, investments and insurance policies. If all these institutions reported on their entire financing portfolio, the sector’s known emissions would increase dramatically.

So these companies have a unique, dual role to play in the transition. They need to understand the risks they face in the current system in order to help build and thrive in the next one. But attention must swiftly switch to their influence in the wider economy. This is where the potential to catalyse rapid change lies. Achieving net zero by 2050 will require huge amounts of capital to flow into low carbon tech and sustainable business. Only the financial services sector can provide this.

That’s why, following detailed consultation with the sector, CDP has launched its first questionnaire focusing on publicly listed financial services companies. These questions will help banks, asset managers and insurers understand their specific environmental impacts, while the data generated improves market understanding of the challenge. This development will fill a critical gap, highlighted by the international Task Force on Climate-related Financial Disclosures, amongst others.

As ever, we need companies to come on board and disclose, to reap the benefits of our tools themselves and help trigger the normative shift required. Our questionnaire is now publicly available to view alongside reporting guidance for companies, and we will be working with companies to help them use the framework and resources effectively. Companies will start to disclose via the questionnaire in April, and we will reflect what we learn back to the wider investment community. This will equip companies, regulators and civil society with invaluable data to understand and address this unique dimension of the climate challenge.

We all know this is a critical year for climate action. As BlackRock CEO Larry Fink said recently, “The evidence on climate risk is compelling investors to reassess core assumptions about modern finance.” The companies that will thrive in the economies of tomorrow are now planning with this firmly in mind - those that do not risk being left behind. Reporting is a critical first step to achieving this.

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