In this episode, we discuss what businesses that belong to the financial sector can do to limit their emissions to ensure global heating does not exceed 1.5C. In this episode, we feature Grant Thornton – the first accountancy firm in the world to set Science Based Targets – as a case study to demonstrate what can be achieved. Karen Higgens, their Head of Sustainability, talks us through their journey, highlights their successes and advises how they overcame their challenges as an organisation. Also featured in this episode is our in-house expert and climate strategist, Emma Littlewood, who shares her insider knowledge and includes a number of valuable signposts to help organisations get started on their sustainability journey with confidence and integrity.

Welcome to Target 1.5. A mini-series of podcasts designed to help you play YOUR part in limiting global heating to 1.5 degrees. Our world is facing a climate crisis. The IPCC has warned us that this is Code Red for Humanity. Without taking action now, the stability of our food, our water, our leisure and most of all our safety, is at risk. But this warning isn’t final – because there is still time. Limiting global warming to 1.5 degrees may help us avoid the worst aspects of this climate catastrophe. But in practical terms, what can businesses do to help make this happen? In this series, we’ll be meeting business leaders from three key industries: financial services, law, and food & beverage. We’ll be finding out how they’ve changed the way they do business to become more sustainable. And they’ll be sharing exclusive insights, advice and guidance to support you on your journey. I’m your host Will Richardson, and with me is our in-house expert and climate strategist, Emma Littlewood. 

Emma, first of all, let's just get a handle on all this terminology. What is this 1.5 degree target? And why is it so important?

We'll hear the phrase net zero carbon quite a lot. What does this actually mean?

And do you have a feeling of what you think it's going to be?

Yeah, I'm glad you asked that. I've got more than the feeling because I've been involved in the consultation and read the draft documents, etc. And what it's going to be is, we'll come on to this a bit more later when we talk about science based targets won't we but, what it's going to mean is that: when you are net zero, you have reached your long term science-based reduction target, which will mean a maximum of 10% of your baseline emissions, which is the year that you set the target is your baseline, only a maximum of 10% of those can be addressed by any kind of removals of carbon from the atmosphere. So reduction is going to need to be 90% of your strategy.

And could you briefly summarise what offsetting is?

Yeah, sure. So there are two offset markets, there's the national one, which is carbon credits, and countries can trade carbon credits with each other, so that one country can emit more than its allowance. It's called a cap and trade scheme. Now in the voluntary sector, you can get something called verified carbon offsets. And there are various different schemes. Carbon offsets have been around for a long time, and they are designed to compensate for that bit of your carbon footprint that you haven't been able to reduce.

Okay. And, in a nutshell, what are science based targets?

In a nutshell, science based targets are designed to align companies with the 1.5 cap on heating above pre-industrial levels. And it will show you what your reduction trajectory needs to look like and how you need to reduce in your carbon portfolio.

Brilliant. In our first case study, we're putting the spotlight on the financial services sector. Its role in climate change is being watched very carefully, particularly because of investment in fossil fuels and pensions. Grant Thornton was the first accountancy firm in the world to set science based targets. And they've been hugely successful in their ambition to reduce their carbon footprint. Karen Higgins is their head of sustainability.

Karen mentioned scope one, two, and three there. Emma, can you help define scope one and two and three for us?

Yeah, sure, of course. When you emit some greenhouse gases, if you're doing it immediately, like you have bought some petrol, you might be lucky to get some, but you've bought some petrol and put it in your car and you're burning it, then that's qualified as scope one, because you're directly emitting those greenhouse gases into the atmosphere, and you've purchased the fuel and you've burnt it. And then what they do is they defined scope two as indirect emissions from the purchase use of electricity, heat or steam. And so when you use electricity, you aren't actually emitting those gases straight into the atmosphere, there's an indirect amount of carbon that is embedded within the use of the electricity to do with coal, or gas, or oil, or any other fossil fuels, or any other biomass that's gone in there. And then scope three is basically everything else. It's all the stuff that you buy all the stuff, the waste you throw away, and everything that's up and down your value chain, it could be when you get on a flight, it could be when you buy a piece of paper, there's embodied carbon in those products.

Brilliant. Thank you. And why should a financial services organisation look at implementing science based targets?

Yeah, it was really interesting listening to Karen there talking about scope three. When you're looking at your scope three and you're a finance company, where you've got investments or you've got assets under management, you've got an enormous potential to-. Lots of leverage in your scope three because you can direct where the money goes and where the money goes, the carbon follows. So you can choose what money goes where, actually you could put all your money into things that are green, or you could put all your money into things that are fossil fuels. Obviously, it's not as simple as that, because funds have to make money and they have to, they have to have returns on the investment. But there's a special science based target framework and guidelines and toolkit for the finance sector. I've used it with a bank, and it's very good. And it does sort of peel back the layers that are in front of your eyes that make you feel like you can't see into your scope three, and it just sort of brings it to life for you. And it reminds you that your scope three is someone else's scope one and two.

Yeah, I think that's a really important thing to remember. And this is why we've put together this audio guide - Target 1.5. We want to inspire you to change the way you do business to tackle climate change by showcasing the success of established organisations that have already implemented sustainability practices. For Grant Thornton, it hasn't all been plain sailing.

There were challenges along the way, as there always are with things like this. Not so much. I mean, setting the science based targets was fairly straightforward, because we work with some fantastic consultants. The challenges are more sort of ongoing, such as the collection of data from our suppliers. Some are easier than others. Another obvious challenge was around measurement during the pandemic and the changes to the way that we've been working and are working patterns, particularly now when some of our people are working from offices, but the majority are still working from home. 

Well overcoming those challenges really presents us with a number of opportunities. And when we talk about collecting data from our suppliers, it has made us think more deeply in terms of how we work with those suppliers. And if there's an opportunity to work more closely with them and think about how together you know through our supply chain, are we going to become a much you know, more responsible business and then around measurement and working from home, what we're planning later this year is to conduct a working from home survey where we can collect data from all our people around some of the questions that we need to ask around working from home, such as how they're working their energy supplies from home, etc, etc. And I think that will allow us to understand how people work and but also how we can measure impact as we're working in a more hybrid way. 

Probably the most helpful discovery on our sustainability Grant Thornton is the understanding that although supply chain emissions may feel distant and difficult to impact that when you look at your procurement policies and look at what you really need to operate, there are things you can do. And collaborating with suppliers to bring them on the journey with you makes a huge difference. And that's what we mentioned earlier, that's what we want to do a lot more. And, you know, once we start measuring what we're doing and what we're doing together, the understanding of the business increases and brings different aspects of the business together on this kind of collaborative approach to avert climate change, I think it goes back to you know, nobody can do this on our own. You know, we're all in this together. And it's not a competitive environment, we all need to make those changes in order to achieve our target. 

That leads us nicely on to our next topic, collaboration, which we have touched upon prior to this. In June, we spoke to James close, the head of climate change at NatWest, and collaboration is a huge priority for him.

We’re really proud of the work that we've been doing with Octopus to give our customers access to electric vehicle recharging networks at a lower cost, and also use it to install vehicle charging, where that's appropriate. And we're also collaborating with Microsoft to give customers access to carbon footprinting data because that that's going to be really important for them to make better choices in terms of how they, you know, change their operations to get access to low carbon energy, how they engage with their supply chain to make sure they're building a supply chain that has sustainable businesses within it, and how they can link that to the way in which their products get used by their customers. So you know, that measurement side is also really important of the partnership that we're building with customers. And we're using, you know, we know, we can't do it all ourselves, which is why we've enlisted the help of some of these leading organisations. And, you know, we've had some other great conversations. So lots more really exciting things in the pipeline, I think. 

Emma, how does collaboration work in this space?

It's a very creative space in a way, because what you're doing is you're stepping back and you're coming up with ideas. So although it's incredibly challenging, and seems formidable, it can actually be quite fun. So for example, you might be a bank, and you might have a load of commercial customers. So you've got lots of companies who bank with you. And you might say, okay, well, they're in our value chain, how can we help them, and you might provide a carbon footprinting platform, a free tool for them, and you might give them access to reduced or free consultancy advice about how to reduce their own emissions, their own scope, one or two, or perhaps even their scope three as well. Then you can do things like, for example, you can partner with energy companies, and you can do things like have reduced fees for installing electric vehicle charging points, at company's offices, or premises. And this is something that octopus energy actually provide as an example. So that's a kind of partnership. And other ways that you can do this are for example, you can say to your funds, if you're a finance company, okay, we're going on this science based target journey. One of the options, that moment that's available as a scope three type of target, is the percentage of your portfolio, who are also signed up to science based targets. So you partner with them, and you say, will you come on this journey with us? And if you come on this journey with us, we will be on that journey together, and we will collaborate and look at best practice and how to reduce. So there are lots of examples where, you know, people are working together and collaborating. And I think that that is far more impactful than trying to be the first company to reach net zero.

Looking to the future, what's in the pipeline for Grant Thornton? Here's Karen Higgins.

So, you know, we're really proud of what we've done. But also, we can do a lot more, we've got plans in place to focus on certain areas, such as measuring and reporting on our water usage, which is something we haven't done before. We want to work more closely with our landlord managed offices to capture more accurate information, as well as continuing with some of our employee engagement programs to create awareness, encourage behaviour change, not just not just at work, but also when people are at home. And because we're going to be going into this more hybrid approach, I think that's more important than ever. So also, we don't we don't use offsets, nor do we make claims on the back of them and we also ensure all of our 100% renewable energy is bona fide so I think working you know, piece of advice is where we you know, we work with a great team, and they're on that journey with us every step of the way to make sure that we don't make those mistakes. And we don't we don't waste time being ineffective. 

So there's plenty still to be done. I asked James Close what he thought about the financial sector's response to the climate emergency.

What’s been really quite extraordinary is Mark Carney and the role that he's played both to set the narrative around what finance needs to do. And he initiated that when he was at the Bank of England, of course, through TCFD. He's been a very vociferous advocate of carbon pricing. But also as the UN ambassador for climate finance, and an advisor to the UK presidency on climate finance. He's mobilised this Coalition for net zero, the Glasgow Financial Alliance for net zero. And I think there's over $23 trillion worth of asset owners who have committed to net zero. You know, asset managers are also bought into it. You know, we hear about a lot about BlackRock and what Larry Fink is doing. And then, of course, many of the banks have also signed up to it, as well. And we were delighted to be one of the first signatories to that initiative. So I think there is a lot of momentum building, I think we have to be realistic about the scale of the challenge as well. And we also have to think about how we can best deploy our balance sheet to support the transition. And, of course, that requires some difficult choices to be made. And we've made some of those in the context of our lending to coal and oil and gas, and others are going to have to follow and we're all going to have to figure out the way to do this in a way that supports our customers, but facilitates the transition and measures the impact of what we're doing. 

Some of the conversations I had with some of the thinkers, leading thinkers in the pension industry at the World Bank were really interesting, because what's the point of giving somebody a pension 30 years from now, if they can't spend it, because we're living through a climate emergency and two degrees of warming. So it is in the interests of the pension investor, both as an individual and as the fund manager to make really good decisions around that, then the fund manager can do it on behalf of the of the individual. And we as individuals can also request that our we're doing as much as possible to make sure our retirement isn't encumbered by having to address climate change, and that we can, you know, live in a in a stable world of a temperature rise of no more than one and a half degrees. So the acid liability matching is right at the very heart of the role that finance can play. 

We're told pensions are a huge part of the problem. How do you think, Emma, they play a role?

So pensions are investments, investments are made into funds, funds are all wrapped up, and then you get funds of funds and funds and funds of funds. But somewhere at the bottom of all of that there's a company doing something. And I think it is a very challenging thing to look into your pension fund, and try and understand it and try and understand what all these instruments are and what the companies are at the bottom of it. And it's very simplistic to just say, right, we'll just disinvest with fossil fuels, blah, blah, blah. But having said that, it would be really nice if, you know, banks like Barclays did do that, and direct the funds into renewables, which would be, you know, a very powerful statement and a very powerful thing to do. But I do think that because there's so much money in pension funds, because most people, not all people, but most people do have some sort of private pension fund of some kind, then that is a really easy way of saying to people, look at your pension fund. This is something you can do about your scope three, you might not be able to afford an electric vehicle right now this minute, but you can look into your pension fund and you can decide where that money is going to be invested. Do you want it invested in companies that are not following the 1.5 trajectory? Or do you want to direct your money towards the best possible carbon reduction companies you can?

So if you're in the financial services industry, and you're looking for a pathway to sustainability, here are three things that Karen at Grant Thornton would recommend implementing.

Emma, how do we briefly summarise what we've just been chatting about?

I think in the financial services sector, set science based targets which requires you to calculate your carbon emissions, use PCAF, which is an acronym and I can't remember what it stands for, but it's basically the GHG Protocol for financial companies to calculate your carbon footprint, set your science based targets using the financial services special pathway, and look at your investment and ask your funds to come on the journey with you.

Brilliant, thank you. So that just about wraps up our focus on financial services. If you'd like to know more, or make a comment, join our post-podcast discussion at sustainabilitysolved.org. In our next episode, we meet Alex Rhodes from Mishcon de Reya and put the spotlight on Law and the Legal sector.

42% of all green claims in European companies marketing materials were either exaggerated, false, or deceptive. So there is a large problem here in the greenwashing space.

For that and much more, make sure you join us for the next episode of Target 1.5.