In today’s world, the role of financial institutions in combating climate change is gaining significant attention. Banks, as major financiers, are increasingly being held accountable for the carbon emissions linked to their lending and investment portfolios. 

These emissions, known as "financed emissions," pose both regulatory and reputational risks for banks. As the pressure to transition to a net-zero economy mounts, financial institutions need robust data and tools to measure, monitor, and mitigate these emissions.

Here at Equifax we’re building an innovative solution to help lenders leverage comprehensive financial data alongside accurate, transparent & comparable primary and predicted climate data sources to offer banks the ability to measure, monitor, and manage financed emissions across their portfolios and help you close the environmental data gap. 

 

The complexity of identifying financed emissions

Financed emissions are among the hardest to track due to the indirect nature. A bank does not directly produce the emissions but finance companies do. 

This makes it difficult for banks to quantify the environmental impact of their lending and investment activities, particularly in sectors with high levels of greenhouse gas emissions.

The industry needs to not only focus on SMEs, but all global companies finances to understand the full extent of impact every pound is having on the environment. This is no mean feat, but one Equifax is looking to solve.

In addition to this complexity, the regulatory landscape is evolving rapidly. 

Governments and international bodies are increasingly mandating that financial institutions disclose their financed emissions and take action to reduce them and are pushing banks to become more transparent about their climate risks and opportunities. 

Non-compliance could lead to financial penalties and reputational damage, making it crucial for banks to get ahead of these requirements.

 

The current challenges in measuring financed emissions

Many banks are currently managing financed emissions using traditional methods, such as manual calculations and estimating based on their spend, but these approaches come with significant limitations. 

Typically, banks rely on client-reported data or third-party emissions estimates based on industry averages. While this provides a baseline understanding, it often lacks the granularity and accuracy needed to track real-time emissions or project future scenarios. 

These estimations, often based on outdated or incomplete data, can lead to inconsistencies, making it challenging for banks to meet emerging regulatory standards or achieve meaningful emissions reductions. 

Additionally, without dynamic data sources, banks may struggle to assess climate risks across diverse portfolios, which can result in missed opportunities for green investments and inadequate preparation for stricter sustainability mandates.

By relying solely on client disclosure or basic industry metrics, banks are left with a fragmented view of their emissions exposure, which can hinder their ability to strategically pivot toward more sustainable financing practices. This underscores the need for integrated, real-time data solutions, which allow for accurate measurement, reporting, and action on financed emissions.

 

The role of data in managing financed emissions

Equifax is combining cutting-edge financial data with advanced environmental analytics to provide banks with granular insights into the carbon intensity of various sectors, enabling them to track emissions in real-time and report on their progress toward net-zero targets.

By integrating financial and environmental data for accurate measurement and forecasting of emissions across diverse industries, we are helping banks gain a deep understanding of the environmental impact of their portfolios, identify high-emission sectors, and take strategic steps to reduce their financed emissions.

 

Addressing regulatory requirements

As the world moves toward stricter climate regulations, banks are under increasing pressure to disclose their financed emissions. The rise of regulations means that banks must provide transparent reporting on their environmental impact.

By providing accurate, real-time data on emissions will allow banks to model how their portfolios will perform in the future under different regulatory scenarios, helping them stay ahead of compliance risks.

 

Leveraging collaborative data for sustainable outcomes

In addition to Equifax’s proprietary data, our solution incorporates relevant data from third-party sources to provide a holistic view of a bank’s financed emissions exposure. This allows for even more accurate and comprehensive emissions tracking and reporting, giving banks the tools they need to make well-informed decisions about their portfolios.

By offering advanced environmental data alongside, we’ll be able to ensure banks have access to the full picture when managing financed emissions. The ability to cross-reference financial data with real-time emissions metrics empowers banks to build more sustainable portfolios and make informed decisions that align with their long-term sustainability goals.

 

Conclusion

The challenge of managing financed emissions is one of the most pressing issues facing lenders in the UK today. With increasing regulatory scrutiny, financial institutions must take proactive steps to measure and mitigate their climate impact. 

Equifax is building advanced data solutions to provide the insights, tools, and predictive models that banks need to track their emissions and comply with regulatory requirements.

By integrating environmental data with financial risk assessments, Equifax’s solution helps UK lenders make informed, sustainable decisions that benefit both their bottom line and the planet. 

If you like more information on how we can help your business, feel free to contact me on brad.davies@equifax.com