The objective is ambitious: the government wants to make the United Kingdom the first net zero financial center in the world. In 2023, most major companies and financial services institutions in the UK will have to start publishing detailed plans on how they intend to achieve net zero, under proposed Treasury rules. These plans should include clearly defined decarbonization targets and concrete milestones detailing the path to progress.
Less than a year from the entry into force of these rules, time is running out for many financial institutions. While every organization in every sector has a role to play in building a greener future, the financial services industry will play a crucial role in both financing and accelerating progress. Money talks. And when it comes to the journey to net zero, it also acts.
The net zero ambition-action gap
Despite strong transformation ambitions, recent research from Microsoft UK reveals that the financial services industry faces a net zero ambition-to-action gap. At the current rate of progress, only 16% of financial institutions surveyed will reach net zero by 2050, which is significantly lower than the national average of 41%. Meanwhile, 73% have so far struggled to back up their climate commitments with tangible reductions in their carbon footprint. Moreover, only 29% of companies currently apply environmental standards in their supply chain and 63% admit to not considering the role and value of natural capital in planning and operations.
This must change. As the Chancellor seeks to create a science-based “gold standard” for transition plans, drawn up by a new Transition Plan Task Force, distant, first-order decarbonisation targets will not suffice. Instead, financial institutions will need to set solid milestones containing explicit quantitative commitments on their transition to a low-carbon economy.
This includes using digital carbon measurement tools to ensure that any reported progress on net zero accounting statements is real progress. In the long term, reaching net zero by 2035 should be seen as a realistic goal and pursued vigorously. Here, technologies such as the cloud, carbon measurement tools, digital twins, AI and data analytics can play a crucial role in identifying gaps, measuring impact and accelerating progress.
Technology has transformative potential
Technological innovation is key to improving environmental sustainability. From shifting to less energy-intensive digital infrastructures, such as sustainable cloud solutions and virtual collaboration tools, to using carbon calculation systems to understand and take charge of their emissions, digital technologies represent an increasingly of any organization’s ability to reduce its climate footprint.
Looking to the future, there must also be increased commitment and investment in research and development of technologies that are both affordable and greener. More sophisticated solutions such as robotic process automation (RPA) can help a company improve its sustainability goals, when applied to carbon measurement, machine learning, and digital twins.
Whether it’s IoT for climate risk adaptation strategies or AI, cloud and data science for robust emissions measurement, technology has transformative potential to help us to solve some of our greatest climate challenges. If businesses mobilize the will to better understand and access digital technologies that contribute to end-to-end carbon reduction strategies, the UK has a real chance of achieving the government’s goal of becoming the world’s leading net financial center. zero in the world.
Changing minds, changing the world
Perhaps unsurprisingly, when categorizing financial institutions by their sustainability progress, the vast majority (73%) rank as ambitious: better at creating ambition and devising strategies than at executing and operationalize the results. Only 13% could be classified as sustainability leaders: those who are at the forefront of sustainability execution and on track to quickly reach their net zero goals.
The challenges faced by the vast majority are clear: many lack the capacity to act due to the lack of a clear organizational sustainability strategic plan in place. This coincides with a lack of internal skills and expertise as well as an entrepreneurial mindset that now needs to evolve towards more sustainable business operations. Finally, making the most of available technology to support their efforts is a factor, along with calculating the costs involved in a revolution from a sustainability perspective.
Companies leading the charge stand out for their willingness to invest in innovation and deepen their understanding of the costs/benefits of a sustainability strategy. Many are also taking steps to integrate carbon reduction into their accounting and measurement processes – a key objective of the Bank of England.
The time for promises without action is over
It’s true that taking action on sustainability can be seen as daunting for many companies, but now is the time for leaders to stop just pretending to champion the cause and embed real change in their business operations in the future.
Pledges must shift to progress – and not just to help financial institutions improve their own sustainability outcomes. Through innovative financial instruments, reducing exposure to carbon-intensive sectors and developing an accurate way to measure a portfolio’s carbon footprint, the industry can be a catalyst for sustainable growth and investment. across the UK economy. Every organization, especially those with the greatest scale and influence, has a duty to create real systemic change – for the good of the climate.