UK banks leading on showcasing more Scope 3 reporting in net zero journeys

A comprehensive new study reveals significant gaps in global banks' transparency around their net zero targets, particularly in disclosing Scope 3 emissions, which make up the majority of their carbon footprint. The findings highlight regional disparities and underscore the need for improved regulatory frameworks to drive the financial sector towards more robust climate commitments.

Across the globe, companies are increasingly recognising the imperative to turn their sustainability agendas into action. In particular, a rising number of organisations have embarked on initiatives to curb their greenhouse gas (GHG) emissions. As highlighted by the Financial Times’ Europe’s Climate Leaders 2024 list, businesses have made major strides in reducing the intensity of their Scope 1 and 2 GHG emissions, respectively produced by an organisation’s own operations and the energy it consumes.

But there is a major problem which many firms are struggle to face: Scope 3 emissions. These indirect emissions occur in the value chain of the reporting company, and are the largest driver of many companies' total GHG emissions, often exceeding 70%. And while disclosures to carbon monitoring schemes rose by more than 50% in the last year, only a third of companies recently told Capgemini that Scope 3 emissions are accounted for in corporate decarbonisation measures – showing a gap between firms’ stated intentions, and their actions.

According to a new study from Wavestone, however, the banking sector at least is determined to change this. In particular, European banks lead in transparency – and while a global 42% of banks examined disclose Scope 3 emissions, which typically account for over 95% of their institution's total greenhouse gas emissions, that rises to over 84% in Europe.

According to Wavestone, the UK is “in pole position” with regards to the country’s banks and their approach to Scope 3 reporting. While 84% of UK banks disclose Scope 3 data, the study also found 32% have science-based targets or have committed to validate their targets, and 64% have targets for financed emissions in line with CSA guidance – putting them ahead of rivals in France (the first country in the world to introduce mandatory carbon reporting for financial institutions in 2015) and Switzerland.

In stark contrast, however, just 12% of US banks report Scope 3 emissions, with a mere 4% disclosing decarbonization plans. The Asia-Pacific region shows that 33% of banks report Scope 3 emissions, and only 4% have decarbonisation plans.

Wavestone argues that the higher disclosure rates in Europe are linked to stringent regulations and investor expectations. The UK and France, with mandatory climate-related financial disclosures, show higher compliance compared to the US and APAC, where such mandates are lacking.

Commenting on the findings, the researchers concluded, “The study underscores the urgent need for global banks to improve climate disclosures and adopt science-based targets. Enhanced transparency and accountability will enable the financial sector to play a pivotal role in combating climate change. This study serves as a valuable tool for financial institutions looking to assess and enhance their sustainability strategies. Beyond highlighting current trends and advancements, it provides concrete examples and best practices that can be used as benchmarks for future actions.”