Getting the Right Data is Critical for Reporting Emissions

Painting a comprehensive picture of the financial sector’s progress on decarbonization will be a highly complex process involving huge amounts of data. But more critical than quantity is the quality of that data.

It’s a typical example of the chicken and egg dilemma. Financial institutions postpone calculating their emissions until they have access to higher quality data, but until more financial institutions measure these emissions, data scarcity remains an issue.

Differences in data types, collection methods and reporting standards across industries and regions have historically undermined the reliability and credibility of sustainability reports. This form of sustainability measurement is also still relatively nascent, and many of the data collection techniques lack the sophistication required to capture accurate evidence.

Within the financial sector, meaningful comparisons are hamstrung by challenges unique to the industry. The greenhouse gas emissions that financial institutions are responsible for predominantly come from their financing activities, and attributing these emissions involves assessing the entities they finance, which span multiple industries and geographies.

Too rarely discussed is the fact that the necessary starting point of this reporting journey involves the strategic use of estimations and approximations in lieu of exact data. Over time, as more data becomes available and reporting practices mature, these estimations can be refined and calibrated for greater accuracy.

The iterative process not only enhances the credibility of sustainability reports in the long-term but also encourages continuous improvement in data collection and reporting practices, ultimately leading to more meaningful and actionable sustainability insights in the future.

This is why repositories of data are so vital to the elevation of emissions disclosure. Our Partnership for Carbon Accounting Financials Database,¹ opens new tab is a repository of emissions factors that enables firms to fill in data gaps with estimations by sectors and regions. It is a particularly valuable tool for financial institutions with limited resources to independently gather data, ensuring they are still in a position to initiate their greenhouse gas emissions accounting journey.

Initiatives that develop innovative technology to obtain actual emissions measurements while adhering to required levels of consumer and data privacy address the fundamental data issue. The German Savings Bank Association (DSGV) is piloting a digital building pass that can give banks and third parties access to actual building data measurements, and offer consumers control over who can view that data. Implementing this solution would enable associated banks to measure more precisely the financed emissions associated with mortgage portfolios.

Also important to the transition towards more precise data is greater collaboration between the public and private sectors. This can not only lead to the development of innovative tools and methods for data collection, analysis and reporting, but can also help in disseminating best practices, drive investment in sustainability initiatives and ensure a more transparent and accountable approach to climate governance.

An example is the Dutch Central Bureau of Statistics, which partnered with a group of Dutch banks, the land registry, and an energy provider, to assess the “actual” electricity and heat consumption of buildings within the banks’ mortgage portfolios. The insights of this collaboration are enabling the banks to capture an average electricity and heat consumption pattern across the various zip codes in the Netherlands, allowing them to estimate the emissions associated with their mortgage portfolios.

Of course, public-private collaboration will only take the international financial system so far, so fast.

If regulatory bodies mandated companies (i.e., financial institutions’ clients and investees) to meticulously measure and disclose their emissions and ensure these disclosures undergo rigorous auditing, the ripple effect would be profound. Such mandates would streamline the process for the financial sector, allowing firms to leverage company-reported data to calculate their financed, facilitated, and insurance-associated emissions.

In Europe, implementation of the Corporate Sustainability Reporting Directive (CSRD) marks a significant stride forward, however the full potential of regulation will only be realized when such measures are adopted globally. This would not only level the playing field but also significantly amplify collective efforts towards mitigating climate change.

There are other drivers, of course, and these are also motivating companies to start measuring their emissions. Increasingly, there is a robust corporate understanding of climate-related risks and the commercial opportunities presented by the transition to net zero.

But a wide gap remains between small and medium enterprises and bigger corporates. Ultimately, the cost of emissions must either be tackled with regulation or embedded in the profit and loss statements of companies. Only then will investment shift to more sustainable options and affect systemic change.

While data challenges pose significant obstacles to meaningful sustainability reporting, the strategic use of estimations and approximations in the near-term remains a vital stage of the process to achieving greater precision.

Coupled with innovation, robust collaboration between the public and private sectors, and deeper regulatory action, emissions reporting will reach the necessary level to more accurately track decarbonization in the real economy. And ultimately, data will act as the vehicle that carries the international financial sector forward towards a net-zero emissions economy.