RFI releases financed emissions report and open-access database

The RFI Foundation has released a report and database with estimates of financed emissions across 11 OIC markets in a continuation of our focus on improving financial institutions’ ability to address climate change. The urgent need for this type of resource is reinforced by the conclusions of the Global Stocktake that the world has until 2025 to reach peak global emissions.

To reach this peak within the next two years does not mean every country will individually reach that peak, but whatever level of emissions reduction is feasible for each country will have to be achieved far ahead of exact data showing our progress. There will be no daily counts to measure our progress against the goal. With the consequences of failing to meet the goal being so severe, however, the precautionary principle of doing the utmost to mitigate emissions becomes a common-sense guide.

As these efforts proceed, they should be guided by a conclusion of the Global Stocktake:“Achieving net zero CO2 and GHG emissions requires systems transformations across all sectors and contexts, including scaling up renewable energy while phasing out all unabated fossil fuels, ending deforestation, reducing non-CO2 emissions and implementing both supply- and demand-side measures.”

This is where the RFI Foundation’s database is so important, especially since it focuses on markets where emissions data are available only for a limited number of companies across a narrow range of high-emitting sectors. If these companies could reduce emissions unilaterally and without wider impact on the economy and society, then the focus on measuring emissions from these sectors and focusing on metrics and targets for those companies would be effective without further effort.

But we know that is not the case, and this limits substantially the room for action by financial institutions to focus their climate change strategies in this way. Financing renewable energy, or electric vehicles and public transport, and financing transition plans of high-emitting and hard-to-abate sectors is necessary. But this won’t be enough on its own because they produce for a reason, to meet demand, which drives their decision-making.

If these high-emitting sectors were faced with a serious transition risk, the impact for financial institutions would not be limited to just the financing provided to this sector. All the other companies whose demand induces the production of high-emitting goods and services, whether that is electricity, vehicles or the sources of waste that result, would face a corresponding shock depending on how reliant they are on the output of high-emitting sectors.

RFI’s database tries to illustrate the value chain sources of risk transmission that would impact financial institutions in case of a transition risk materializing. It also helps to fill a data gap where current bottom-up emissions data use different methodologies and are of varying consistency. This doesn’t detract from good efforts like the Net Zero Data Public Utility and key standard setters to improve the consistency of the data, it complements them.

As these bottom-up data are aggregated – and especially as the scale of aggregation increases – the margin of error multiplies. It becomes more important to look not just at multiple perspectives covering regulatory requirements for emissions data but also other sources of information. This is to triangulate not only what needs to be disclosed, but what can inform strategy to bring more of a financial institution’s assets to bear on the issue of highest urgency, which is peaking emissions as fast as possible.