JUMPSTART YOUR JOURNEY IN MEASURING EMISSIONS
PLANET
The Joint Impact Model (JIM) aids financial institutions in emerging economies to jumpstart their decarbonization journey by quantifying their financed emissions. This helps them to understand the climate footprint of their lending portfolios. At a recent exclusive event in India, regional financial institutions discussed the importance of measuring financed emissions, the challenges they face within their own organizations, and how a tool like JIM can help.
Kongkona Sarma
Delivery lead, FSG Plus, BII Technical Assistance Facility for Financial Services Group
"Amidst ample opportunities for climate financing, the scarcity of data and research on viable projects is often cited as banks' main reluctance to initiate decarbonization pathways."
Giulia Debernardini
Managing Director of JIM Foundation
As the world grapples with the challenges posed by rising greenhouse gas (GHG) emissions, there is an increasing recognition of the need to comprehensively account for and regulate emissions across all sectors. Apart from their own operations, financial institutions (FIs) can help reduce emissions of their portfolios. To do this, the first step is measuring and accounting for emissions generated by their downstream borrowers and investees. These emissions, known as 'financed emissions', could be up to 700 times the direct emissions generated by a financial institution. Understanding the GHG emissions associated with their financed activities enables FIs to assess exposure to carbon-intensive industries, identify risks in their portfolios, and make informed investment decisions. South Asia is both a large contributor to climate change and one of the regions that is most vulnerable to its impacts. Sectors like energy, transport, agriculture and industry contribute significantly to GHG emissions, and also receive large volumes of funding from banks and investors in the region.
'financed emissions' could be up to
times the direct emissions generated by a financial institution
Aneese Lelijveld, Technical Director of the JIM Foundation and Manager Impact Evaluations at BII
The first step towards a net zero future
To help build awareness around financed emissions and provide practical guidance in using the Joint Impact Model for financial institutions in South Asia, British International Investment (BII) together with FMO, the Joint Impact Model Foundation and local partner Sattva Consulting, organized a conference in July this year in Mumbai, India. The event, ‘Measuring financed emissions: The first step towards a net zero future’, brought together over 70 participants from various domains within the financial industry. During the event, the urgency of addressing climate change and the pivotal role of financial institutions were stressed.
One of the key takeaways from the panel discussion was the emphasis placed on assessing transition and climate risks in the journey towards decarbonization. It became clear that effective collaboration among banks, borrowers, and regulators is essential to identify sectors, establish baselines, and work towards continuous improvement in building a green economy. Moreover, the discussion highlighted the growing significance of sustainability reporting frameworks and the integration of sustainability principles into operations.
Round table conversations at the 'Measuring financed emissions: the first steps towards a net zero future' conference in Mumbai
Internal buy-in
The event provided valuable insights into the challenges faced by banks in South Asia concerning carbon accounting and climate finance, which are largely the same echoed throughout other regions. Although there is encouragement from central banks and regulators in the respective countries, most banks still lack the necessary tools and internal capacity to begin their journey. Even if carbon accounting is conducted as a one-off exercise (often with help from an external party), figuring out the subsequent steps to engage with clients and decarbonize portfolios without compromising growth becomes exceedingly difficult, especially for portfolios in countries with hard-to-abate sectors. As a result, obtaining internal buy-in on decarbonization pathways from higher-level executives within the bank often proves challenging.
While climate financing opportunities abound, the scarcity of data and research to generate a pipeline of bankable projects is frequently cited as the primary reason why banks are hesitant to embark on their decarbonization pathways. Addressing this issue is crucial to unlocking the potential for sustainable climate initiatives and fostering a positive impact on the environment.
Comparability and accountability
The JIM is a secure online impact measurement tool managed by the non-profit JIM Foundation. Its goal is to build and curate high-quality, transparent, and comparable tools that will steadily expand to cover climate risks, transition planning, biodiversity and other impacts. To that end, the Foundation aims to address the challenges currently faced by the financial industry and does so by providing the resources required to implement decarbonization pathways. This empowers FIs to effectively engage with high-emitting sectors, facilitating the reduction of emissions in their portfolios. Originally developed by and tailored to Development Financial Institutions (DFIs) and Multilateral Development Banks (MDBs), the JIM is currently extending an invitation to financial institutions that invest in developing countries to become JIM members. The JIM wants to ensure alignment to evolving regulatory requirements while also providing training and support to all its members.
“The Joint Impact Model enables FIs to measure financed greenhouse gas emissions to implement decarbonization pathways.”
HOW JIM HELPS
1.
Enables the disclosure of the principal impacts such as direct and indirect jobs, contribution to GDP, and scope 1, 2, and 3 upstream greenhouse gas (GHG) emissions related to the portfolios of financial institutions. This helps to tackle data challenges, found particularly in emerging markets. The aim is to provide best-in-class research and development on impact measurement practices.
2.
Provides a harmonized approach, aligned to the ever-increasing reporting requirements from regulatory bodies and standard setters. This means that reputational and operational risk is higher than ever and needs from external stakeholders are increasing. The JIM allows for comparability and accountability in the financial sector, reducing the risk of using inconsistent approaches currently found in the market. It is aligned with standard setters such as PCAF, TCFD, ISSB, SFDR, and others.
3.
Eliminates the need for organizations to engineer their own systems. Since the JIM makes its platform available to all members, institutions don’t have to spend resources developing their own impact measurement or modelling solutions. Building on 10 years of research while continuously updating, the JIM provides members with access to a world-class platform.
Over the past year, the Joint Impact Model has collaborated with multiple financial institutions that sought to test-run the JIM for their reporting and disclosures. Through these interactions, the JIM has gathered valuable feedback which will be integrated in the JIM 3.0 release. During the Future of Finance conference, the JIM will unveil the enhanced interface and new features that will soon be accessible to all members. You're invited to join this session, where you can gain deeper insights into the full potential of the JIM and how it can assist your financial institution in jumpstarting the journey toward measuring financed emissions. For more info, visit the JIM website.
Learn more about the Joint Impact Model at the Future of Finance Planet track | Wednesday 4 October 11:00
Discover the power of the Joint Impact Model (JIM) in this workshop as it unveils its capacity to provide crucial insights into the financed GHG emissions, climate change impacts, and risks within your portfolio.